Introduction to ETF

ETFs are the securities whose prices track the value of an index, a commodity, or a basket of assets; at the same time, ETF shares can be traded like a stock on an exchange. The underlying mechanism of ETF works as follows. The company or financial institution which creates and administers an exchange-traded fund (ETF) is called an ETF provider. The ETF provider chooses and purchases the underlying securities for its ETF shares from the markets. The ETF provider then puts these securities at its deposit or delivers them to a professional custodian for ETF underlying assets. After that, the ETF provider issues ETF shares and sells individual ETF shares to retail investors through the exchange. On the other hand, the retail investors can sell the ETF back to the market or redeem their shares of ETF for the underlying assets from the ETF provider or an independent ETFs custodian set up for the ETF contracts.