Strange Times For The Natural Gas ETN (GAZ)

Unlike mutual funds, ETFs are bought not from the company that creates and manages the products, but from other market participants. While that arrangement is responsible for many of the benefits of ETFs–such as intraday liquidity–it also introduces some potential pitfalls. Specifically, using market orders can be potentially hazardous as it introduces the possibility of paying more for a security than it is actually worth. Whereas mutual funds are bought and sold at NAV, ETFs change hands at whatever price clears the market. Fortunately, under every exchange-traded product is a mechanism that is designed to keep prices of these product closely aligned with the net asset value (NAV) of their underlying components. Authorized participants have the ability to create and redeem shares, allowing them to capture an arbitrage profit if a disconnect between price and NAV arises. If an ETP trades for more than its NAV, an AP will buy [...] Click here to read the original article on ETFdb.com. Related Posts: iPath Debuts Seasonal Natural Gas ETN (DCNG) February ETF Roundup: Launches, Filings, and Closures Teucrium Launches Natural Gas ETF (NAGS) Ten Worst Performing ETFs Of 2010 Natural Gas ETFs: Seven Ways To Play