Can ETF shares be traded, and does that cause volatility?

External question — Personal Finance Stack Exchange Author: keshlam Original post: https://money.stackexchange.com/questions/166512 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Can ETFs be traded between individuals, or must they be bought/sold from the fund like old-style mutual fund shares? Seems to me that if trades are allowed, people will try to anticipate future values of those shares and trade on that basis, adding volatility on top of that inherent in the index. I am probably completely confused; clarification appreciated.

External answer — Personal Finance Stack Exchange Author: EJoshuaS Original post: https://money.stackexchange.com/a/166513 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. ETFs are traded on stock exchanges in exactly the same way that other stocks are (which is where their name - Exchange-Traded Funds - comes from). That being said, when you purchase an ETF (at least after the shares are initially sold), you're purchasing them from another investor. (This is in contrast to a mutual fund, where you're purchasing shares directly from the issuer). If you're curious about how an ETF is created in the first place, Investopedia has a good article here . Regardless of the process of creating an ETF in the first place, though, from the perspective of an individual investor it's no different than buying or selling shares in a publicly-traded company.

External answer — Personal Finance Stack Exchange Author: Hart CO Original post: https://money.stackexchange.com/a/166514 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Yes, shares are traded between individuals. This does create short-term volatility. There are institutions that act as Authorized Participants (APs), they can exchange baskets of the securities that comprise the ETF for shares of the ETF, and the other way around. This limits the volatility as deviation in share price relative to what the fund is tracking creates arbitrage opportunity for APs, capitalizing on that opportunity drives the price toward parity.