Trading at a Discount or Premium
Like stocks, ETFs have a bid price—the highest price any buyer
is willing to pay for the ETF—and an ask price, the lowest price
any seller is willing to accept for an ETF. The difference between
the current bid and ask prices is known as the bid/ask spread,
or spread. Because of liquidity of underlying securities, market
volatility and other factors, investors may purchase shares at a
premium or discount to their NAV. When demand for fund shares
exceeds supply, the market price at which an index ETF trades
may be higher than its underlying net asset value—the price is at
a premium to NAV. For example, if the NAV of a fund is $20, and
the fund is selling for $20.20 on an exchange, the fund is said to
be at a 1% premium to NAV. When there are more fund sellers
than buyers, the market price may be at a discount to NAV—that
is, its market price is lower than its NAV. For example, if the
NAV of a fund is $20, and the fund is selling for $19.80 on an
exchange, the fund is said to be at a 1% discount to NAV. Market
forces and the desire to make a transaction usually help keep the
bid/ask close to the NAV.
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
ETF market price is determined by the price of underlying securities, market supply and demand forces
and arbitrage opportunities.
An ETF’s net asset value (NAV) represents the value of the ETF’s underlying
securities as of market close.
Intraday Indicative Value is updated every 15 seconds and represents the approximate NAV throughout the
day.
Investors may purchase shares
at a premium or discount to the NAV.
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