How do exchange transactions contribute in price stability?
Similarly, with a minimum of 10,000 shares, an investor who has bought fund shares in the stock market can get corresponding amount of stocks and cash from the fund by giving fund shares directly to the fund through the Redemption process, or the investor can sell fund shares that he/she obtained by Creation via the stock exchange at the price quoted in the market. This opportunity of making bilateral transactions enables the difference between stock exchange price of the fund and its portfolio value to remain at the least possible level. If price difference increases an arbitrage opportunity will occur, transactions in the stock exchange will lead stock exchange price to get close to the Net Asset Value again.
Related Questions
- Form 1099-B, Proceeds from Broker and Barter Exchange Transactions will be mailed to shareholders who have sold any of their fund shares during the year. (See the answer to the question: Why did I receive Form 1099-B, and where do I report the information?
- What are the transactions customers can conduct in order for the Bank to contribute to the fund?
- Do price stabilisation schemes contribute to stability?
