30.10.2015 - How ETFs operate
To qualify as a Ucits fund, an ETF has to abide by rules that aim to ensure the fund is well diversified to minimise market and counterparty risk. Most exchange-traded funds aim to track the performance of an index, whether that is an alternative, or a traditional market-cap-weighted index such as the S&P 500, Euro Stoxx 50 or FTSE 100. The ETF issuer will try to ensure that the fund performs as closely as possible to the index itself. There are several ways to achieve this, but there are two main types of replication methodology – physical and synthetic. Physical replication is when the ETF holds all, or a majority of, the securities in an underlying index. Orders are typically fulfilled by exchanging baskets of securities for the ETF shares...............................................Full Article: Source
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