Ask Price – The lowest price a seller is willing to accept to sell a security.
Bid Price – The highest price a buyer is willing to accept to purchase a security.
Bid/Ask Spread – The difference or spread between the bid and ask prices.
Commission – Since ETFs trade like stocks on an exchange they may be subject to brokerage commissions. These commissions can be significant, especially for smaller trades. For example, buying $3,000 of an ETF through a discount broker could cost $30 in commissions or 1% of the value. Furthermore, a similar commission may be charged when selling the ETF.
Creation Unit – The smallest block of ETF units that can be bought or sold from the ETF at net asset value by the designated broker. Creation units are usually transacted in 50,000 share increments, making them large dollar transactions limited to large institutions and other authorized participants. Instead of receiving cash, the seller of a creation unit would receive a basket of securities that corresponds to the portfolio holdings in a particular ETF. This “in-kind” transfer process is unique to ETFs and does not create tax consequences for the seller.
Designated Broker – A registered dealer that has entered into an agreement with the ETF manager on behalf of one or more ETFs in which the broker agrees to be the primary dealer to facilitate trading in a security by standing ready to buy and/or sell units at a publically quoted price.
Exchange-traded fund (ETF) – An ETF is an open-ended mutual fund that can be bought or sold throughout the trading day like a stock on a stock exchange. Unlike a traditional mutual fund which can only be bought/sold at the end of the day, at net asset value and directly from the sponsor, an ETF can be bought/sold throughout the day through the exchange at a prevailing market price
Index or underlying Index – A group of securities (stocks or bonds) maintained by an index provider (such as S&P or DEX) used as a performance benchmark for a particular market (e.g. S&P/TSX 60 Index, which contains 60 of the largest companies by market capitalization traded on the TSX). The index level or current value of the index is tracked continuously during the trading day.
Liquidity – The ability of the market to absorb a reasonable amount of buying or selling in a particular security at reasonable price changes. Exchange-traded funds offer two forms of liquidity:
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This information has been provided by RBC Global Asset Management Inc. (RBC GAM) and is for informational purposes only. It is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon for providing such advice. The information contained herein is from sources believed to be reliable, but accuracy cannot be guaranteed. Please consult your advisor and read the prospectus of Fund Facts document before investing. There may be commissions, trailing commissions, management fees and expenses associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. RBC Funds, BlueBay Funds and PH&N Funds are offered by RBC Global Asset Management Inc. and distributed through authorized dealers.
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