How are ETFs bought and sold?


ETFs are traded throughout the day on an exchange at market-determined prices, just like ordinary securities. In contrast, mutual fund shares are bought and sold directly with the fund company at the fund's net asset value (NAV) at the end of each trading day.

ETFs trade just like individual securities

Although they trade similar to individual securities, ETFs—like mutual funds—are open-end, meaning that new shares can be created and existing shares redeemed on a daily basis, based on investor demand. Closed-end funds and individual securities, on the other hand, generally issue a fixed number of shares.


The ETF creation/redemption process

While any investor can create or redeem mutual fund shares directly with the fund company, only certain large institutional investors, called authorized participants, can interact directly with the ETF company to create or redeem ETF shares. Also, while mutual fund investors generally exchange cash for mutual fund shares, the ETF authorized participants typically exchange the underlying securities for ETF shares. The ETF shares that authorized participants create are then traded by individual investors on an exchange.

All investing is subject to risk, including possible loss of principal.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

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