Do You Ever Take the Time to Curl up With a Good Book?
We’re all so busy these days. And information is coming at us at warp speed. There’s a lot of drinking from a fire hose. It’s exhausting!
With everything going on in the world, and all the various opinions out there – right or wrong – wouldn’t you like to get away from it all – at least for a few hours?
You probably would. But do you ever take the time to curl up with a good book and enjoy the simple pleasure of reading a page turner? Some people do. Many don’t.
As I look out my window and see the snow coming down, I can’t help but think of simple pleasures like hunkering down with something that will be good for the soul. I don’t drink coffee or hot chocolate. Instead, I get a high from running or by reading a well written book.
You must have one on your shelf. If not, they are abundantly available at your local library. You could even order one from Amazon and have it delivered to your door in the next 24 hours. So even if you are snowed in – you have no excuse.
Here are a few books on many peoples’ radar which are either new or seeing a resurgence:
A Dog’s Purpose (published by Tom Doherty Associates), by W. Bruce Cameron, is written by the same author that wrote 8 Simple Rules for Dating My Teenage Daughter and How to Remodel a Man. The general consensus on Goodreads is that it is a feel good book worth the read.
If you are a non-fiction reader, Hillbilly Elegy (published by Harper) by JD Vance, is the New York Times #1 Hardcover Non-Fiction book. Vance, a Yale Law School grad, looks at the struggles of Americans white working class thru his own childhood in the Rust Belt. Part memoir, part historical and social analysis, it is a “fascinating consideration of class, culture and the American dream.”
Depending on which side of the political spectrum you are on – or whether you watch Fox News or not – there are 1984 by George Orwell (published by Penguin) and Killing the Rising Sun by Bill O’Reilly (published in 2016 by Henry Holt & Company). O’Reilly’s book was written by Martin Dugard. The Fox News commentator promotes it on his platform.
In addition to 1984, which was published in 1949, also being recycled from a bygone era are It Can’t Happen Here by Sinclair Lewis (published by Doubleday) and Fahrenheit 451 (published in 1953 by Simon & Schuster), written by Ray Bradbury.
On a personal note, I once (circa 1989) attended a Philadelphia 76ers basketball game where Monica Seles, the former professional tennis player, was in attendance. As she, signing autographs, came up the aisle I was sitting near with my attorney friend, Paul, he fished for something in his attaché case for her to sign. He pulled out a copy of Bradbury’s classic and she signed it.
I recently read that Seles has been engaged to Tom Golisano, the owner of Paychex, since June 2014.
According to Wikipedia, “In February 2011, Golisano became the spokesman for National Popular Vote Inc., a non-profit organization seeking to implement a popular vote system for presidential elections by harnessing the electoral college.
I guess in some ways we can’t get away from it all. But we can try.
Understanding ETF Liquidity and Trading
Written by: ProShares
ETFs offer attractive features—access to a broad range of asset classes, sectors and styles in a liquid, transparent and cost-effective vehicle. But before using that vehicle, it’s helpful to understand how it works, especially the sources of ETF liquidity and the mechanics of trading them. Understanding these points may help you improve execution when buying and selling ETFs.
The Primary Market—Creation/Redemption of ETF Shares
Most investors trade ETFs on stock exchanges in the secondary market. But the actual creation and redemption of ETF shares occur in the primary market, between the ETF and authorized participants (APs)1—the only parties who transact directly with the ETF. The APs’ ability to continuously create and redeem shares allows them to meet the supply and demand needs of investors, making them key liquidity providers in the secondary market.
Creation. This is how APs introduce new ETF shares to the secondary market.
- In-kind—The AP creates ETF shares in large increments—known as creation units—by acquiring the securities that make up the benchmark the fund tracks in their appropriate weightings and amounts to reach creation unit size (blocks ranging from 25,000 to 100,000 fund shares). The AP then delivers those securities to the ETF in exchange for ETF shares.
- Cash—Alternatively, APs can create ETF shares by exchanging the appropriate amount of cash for ETF shares, for what’s known as a cash create. Often, ETF shares are created using a combination of securities and cash.
- The AP then offers the ETF shares for sale in the secondary market, where they are traded between buyers and sellers on an exchange.
Redemption. This follows the same process in reverse.
- The AP redeems ETF shares in large increments—known as redemption units—by acquiring them in the secondary market and transferring them to the ETF in exchange for the underlying securities or cash (or both) in the appropriate weightings and amounts.
The Secondary Market—Costs and Mechanics of Trading ETF Shares
Costs of Trading. In the secondary market, firms that specialize in buying and selling ETF shares—APs or market makers2 (liquidity providers)—trade them to provide market liquidity and make a profit. This profit margin is embedded in the bid/ask spread, which reflects the implicit costs of trading ETFs.
Bid/ask spread is the difference between the bid—the highest price at which a buyer is willing to buy shares—and the ask—the lowest price at which a seller is willing to sell ETF shares. Three key factors impact the bid/ask spread:
- Creation/redemption fees charged by the ETF provider to the AP.
- Spread of the underlying securities—The bid/ask spread and liquidity of the securities that make up the ETF affect the liquidity and the bid/ask spread of the ETF itself. When there are many bids and offers on a security, it is easy to buy and sell, thus the bid/ask spread tends to be tight. When securities are less liquid, the spread is wider, making the cost to acquire them higher. The higher the cost of acquiring the underlying securities, the wider the ETF bid/ask spread.
- Risk or hedging costs—Holding ETFs entails certain risks, which need to be hedged. Liquidity providers use a variety of financial instruments, including futures, options and other ETFs, to hedge this risk. The more instruments they have to choose from, the lower their hedging costs and the lower the bid/ask spread. The higher the risk, the wider the spread.
ETF bid/ask spread = Creation/redemption fees + spread of underlying securities + risk
Executing Large Orders—Tapping Into Deeper Pools of Liquidity
There are two common ways to execute larger trades directly with liquidity providers, both allowing investors to access deeper pools of liquidity than those offered in the quoted secondary market alone:
- Risk trade—A liquidity provider will quote a price for an ETF at a given size. If that price is accepted, the trade is executed and the liquidity provider assumes the market risk of providing the liquidity at execution.
- Create/redeem—For orders that are large enough, it may make sense to work with an AP to create or redeem shares. This type of transaction is usually executed at either the closing market price of the ETF or at the NAV of the ETF plus fees or commissions.
Mechanics of Trading. To fully consider an ETF’s total costs, it is important to understand the dynamics of trading. In general, two types of orders are commonly used to trade ETF shares:
- Limit order—Buy or sell ETF shares at a specified price. One way investors decide at what price to enter a limit order is to look at the IOPV3 as a guidepost. Limit orders may help investors get the best price, but there’s a risk the order will not be filled.
- Market order—Buy or sell immediately at the prevailing price available at the time. With market orders, execution may be faster, but the investor has limited control over the execution price.
While a large number of transactions are executed using limit or market orders, investors often find their order is larger than the quoted market. There may be “hidden” liquidity within the quote that can be accessed in the market using limit or market orders. However, in some cases, it may make sense to execute trades directly through a liquidity provider. How and when to place an ETF order can depend on many factors, including price sensitivity, level of urgency and overall goals for the portfolio. Determining what factors matter most can help determine the best execution strategy.
Questions? Our capital markets experts can help. Learn more about our ETFs here.
1 An AP is a U.S. registered, self-clearing broker/dealer who signs an agreement with an ETF provider or distributor to become an authorized participant of a fund.
2 A market maker is a broker/dealer that buys and sells securities (or ETFs) from its own inventory to facilitate trading in those securities. Most APs are market makers, but not all market makers are APs.
3 IOPV is the Indicative Optimized Portfolio Value—the intraday net asset value of the basket of underlying securities
Investing involves risk, including the possible loss of principal. ProShares are non-diversified and each entails certain risks, which may include risk associated with the use of derivatives (swap agreements, futures contracts and similar instruments), imperfect benchmark correlation, leverage and market price variance, all of which can increase volatility and decrease performance. Please see their summary and full prospectuses for a more complete description of risks. Carefully consider the investment objectives, risks, charges and expenses before investing. This and other information can be found in the prospectus; read carefully before investing; obtain at ProShares.com. There is no guarantee any ProShares ETF will achieve its investment objective.
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