Liquidity: It’s What Inside That Counts
While ETFs and stocks share many similarities, how liquidity
is determined is not one of them. A stock’s liquidity is
dependent on its daily trading volume—or the number of shares traded per day. The liquidity of an ETF is primarily
based on the liquidity of its underlying stocks, not by the
activity of the ETF itself.
First Things First: The Creation Unit
To create an ETF, the AP purchases or borrows the underlying
stocks. The stocks are then bundled together, creating
a basket of stocks, or Creation Unit. The Creation Unit typically
mirrors or approximates a specific index—like the S&P
Equal Weight Index—and is calculated at Net Asset Value
(NAV). Set by the issuer, the Creation Unit is usually large
enough to purchase 50,000 to 100,000 shares of the ETF.
The issuer determines the NAV and how many shares will
make up the ETF.
ETFs are subject to risks similar to those of stocks and may not be suitable for
all investors. Investment returns and principal value will fluctuate so that when
shares are redeemed, they may be worth more or less than original cost.
Securities are not guaranteed by any bank, are not insured by the FDIC or any
other agency, and involve investment risks, including the possible loss of the principal
amount invested.
RydexShares are distributed by Rydex Distributors, Inc., an affiliate of Rydex Investments.
Rydex Investments 9601 Blackwell Road Suite 500 Rockville, MD 20850
800.820.0888 Send us your comments
For more complete information regarding Rydex funds, call 800.820.0888 or click here for a prospectus. Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. The fund's prospectus contains this and other information about the fund. Read the prospectus carefully before you invest or send money.
Key Points to Remember
It all begins with the
Authorized Participant— only the Authorized
Participant can create or
redeem shares of an ETF.
When creating an
ETF, common stock is
exchanged for ETF shares.
No cash is exchanged for
ETF shares, making this
an in-kind transaction.
An ETF’s shares are exchanged in-kind for
equal value, so there are
no taxable gains on the
transaction—enhancing
an ETF’s tax efficiency.
Print this page
Email this page
9601 Blackwell Road Suite 500 
It all begins with the