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ETFs

When making a transaction with the basics ETFs are used to determine the total value of the fund, and the proportion of which is part the investor.


Remember that EFT works like an investment fund and thus the investor is placed in the market through shareholdings (Assets).



FUNDAMENTALS FOR


Example:

The total value of the fund depends on the price at which the ETF has closed the previous session.

The ETF (IYW) has its previous close at a price of 102.24; this price will determine the capital invested in the fund until the day prior to the operation.

How to determine the total price of the fund, the price is 102.24 multiplied by the number of shares that make up the ETF (1,000,000 Assets)

Total Assets Fund (1’000,000 x 102.24) = ETF’s :( $102’240,000)

Total value of the fund ETF: $102’240,000.00 USD


As the total value of the ETF is very high, the fund is normally divided into 100 shares (Owners) divided into 10,000 ETFs, they can be acquired by an investor or financial intermediaries that will lower the investing public participation, this participation will divided in the same way 100 shares (owners) divided into 100 ETFs.


The costs of this participation as opposed to the total value of this fund will be calculated by the price at which it enters the market


PERFORMANCE


Position: Long (buy), is expected to increase the value of the ETF.


In Owner Buying: 102.50 this is the value of purchase price at which the transaction and price to determine the value of the shares begins.


Owners Bróker: 100 Assets: 10,000 ETF’s

Owner Price: It is calculated by multiplying 102.50 which is the entry price by the number of ETFs (10,000) = 1'025,000 this is the value of the stake broker.

Owners Invest: 100 Assets: 100 ETF’s

Owner Price: t is calculated by multiplying 102.50 which is the entry price by the number of ETFs 100 = 10,250 would be the value of the stake to the investor.


The result of the operation is calculated on the price that is out of the operation is the moment in which the ETF is sold.


Out Owner selling: 102.63 is the price at which the transaction is closed, in the selling price.


Spread: determines the gain or losses on the transaction, to get the result, prices are subtracted 102.63 - 102.50 = 0.13 this is the gain per share.


Although here comes the important and interesting part of investing in ETFs the investor's share is only 100 ETFs but such participation is part of the acquired by the broker that is 10,000 ETFs, the practice in a mutual fund is to win on investment Global fund (ETFs 10,000).


To calculate the gain acquired by the investor's share should multiply 0.13 x 10,000 ETFs


Total cost & risk


Lost/Profit for Owner: 1,300 USD


The commission charged by the broker for the placement of the investor's share is 1% on participation in this case the value of 100 ETFs for the broker's commission is multiplied 10,250 which is the cost of participation by the 1% = 102.50


Commission Fund: 102.50

(1% / Owner 100 ETF’s)

1.300 USD profit - 102.50 USD commission.


Lost/Profit Total: 1,197.50


But like any financial product in which earnings exceed 5% there is a risk that risk is that the movement of the ETF is contrary to the expected.


ETFs operations ensure they cannot lose more than you invest in the operation, in this case 10,250 USD.


The guarantee is a price Stop Loss price far could keep the operation on the market


It will be necessary to calculate the entry price subtract 1% since that is the level of participation that has the investor to the broker (10,000 / 100 = 1%)


Stop Loos: 102.50 – 1%= 101.47


Risk / Margin Fund: 1% for Assets Fund: 101.47 (1% / Owner 10,000 ETF’s)