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Trading Characteristics ETF LIQUIDITY	ETF Liquidity PDF

Creation/redemption makes all the difference.
The reason that ETF liquidity is not dependent on trading volume lies with the unique ETF creation and redemption process. Via this process, ETF shares can be continuously created or redeemed, based on market demand—in contrast to stocks that have a limited number of shares outstanding.

Authorized participants, which include specialists and market makers, create a basket of stocks to mirror the index the ETF is tracking and ETF shares are created to correspond with these underlying holdings. The authorized participant can sell the ETF shares on the open market, where they
can be sold and resold to other investors.

The redemption process works the same way, only in reverse. This process enables shares to be continuously created or redeemed, regardless of trading volume, reducing the risk that there will be inadequate volume. Thus, again, the liquidity of the underlying stocks has the greatest impact on the ETF’s liquidity.

Creation Process

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.

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Rydex funds are distributed by Rydex Distributors, Inc., an affiliate of Rydex Investments.

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