ETF
ETFs are shares of a basket of stocks bought and sold as a single
investment. Investment companies create these stocks by buying the
underlying stocks and issuing ETF shares. Unlike mutual funds whose
price is set once per day, ETFs trade on stock exchanges at
constantly changing market prices. This prevents market timers
getting preferential prices like the recent mutual fund scandals.
Very large investors can issue new shares or redeem their shares for
the underlying stocks. This keeps the ETF price close in price to the
underlying shares. ETFs do not trade at sizable discounts or
surpluses to the underlying stocks like closed end mutual funds. If
the ETFs begin to trade with any significant discount or surplus,
large investors will issue new shares or redeem their shares to
eliminate the discount or surplus.
[Eustis]