How does a "Tracking ETF" work?

Discussion in 'ETFs' started by Quanto, Mar 3, 2024.

  1. schizo

    schizo

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    Did you read where it's highlighted?

    The SPY's price tracks the S&P 500 index.

    Which means if the S&P 500 moves up in price, so too will the SPY's price, and vice versa.

    So then what drives up the S&P 500 index?

    Obviously, the 500 stocks that make up the index. But S&P is weighted index, so the largest weighted stock will exert the biggest punch.

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    #21     Mar 3, 2024
  2. Quanto

    Quanto

    @schizo, it's about the ETF, not the underlying index.
    Ie. how the ETF can exactly do its tracking if it itself (ie. the ETF) at he same time gets traded by independent outsiders...
    The managing-team of the ETF must actually track both, the underlying as well its own market price,
    in a coordinated way, and this is IMO not easy to do, since one is not the only one who controls it...
    Ie. the manager of the ETF is practically doing "market manipulation" to achieve the set goal,
    b/c w/o his involvement the traders from the outside would be the only ones moving the price of the ETF... :) much like how a stock price gets moved by the trading crowd...
     
    Last edited: Mar 3, 2024
    #22     Mar 3, 2024