What is an ETF

The basket

The basket's contents follow a rule announced in advance: track an index, cover a sector, follow a type of bond… That rule is public — it is what you are buying. The value of a unit reflects, in principle, the value of its fraction of the basket.

Creation and redemption of units — the mechanism that holds it together

This is the least known and most important part. Unlike a stock, whose share count is fixed between corporate decisions, an ETF's units are created and destroyed continuously:

• when demand pushes the unit price ABOVE the basket's value, authorized participants create new units (they deliver the basket's securities to the fund and receive units, which they sell);
• when the price falls BELOW the basket's value, they do the reverse: they redeem units and take back the securities.

This arbitrage back-and-forth generally brings the unit price back toward the basket's value. It is what makes an ETF "worth what it holds" — not by decree, but by mechanics.

The difference from a mutual fund

Both are baskets managed under a rule. The differences are in trading mechanics:

• a mutual fund is bought and sold from the fund itself, once a day, at the net asset value calculated after the close;
• an ETF trades on an exchange, continuously, between investors, at the order book's price — with limit orders, a bid-ask spread and everything that comes with a listing;
• ongoing fees often differ between the two forms, each product publishing its own.

What this changes for your tracking

Prices are not yet shown in the app; they will be at launch.

In Everyfolio, an ETF is tracked exactly like a stock: symbol, quantity, price, dividends (many ETFs pay distributions). The app tracks the unit — the basket's contents, its rule and its fees belong to the fund's documentation.