If the NAV of an ETF is $30 and the ETF is trading at $25, it’s trading at a discount.
If the NAV is $30 and it’s trading at $31, then it’s trading at a premium.
What does this mean? When you’re buying, generally not much. But when you sell, the movement from the discount or premium will affect your overall return. The more you trade, the more evident this impact will be. Buy-and-hold investors may not be as concerned with this issue. [How to Find the Right ETF.]
For more information on ETFs, visit our ETF 101 category. Our ETF Education section contains many more educational articles like this one! Check it out.
Max Chen contributed to this article.