The primary-market process through which authorized participants increase the number of ETF shares outstanding (creation) or reduce it (redemption) by exchanging baskets of securities or cash with the fund.
From this site’s articles: "This is how ETF supply adjusts in response to trading demand."
Quoted passages come from the articles on this site.
Covered in: Why ETF Liquidity ≠ AUM · ETF Market Structure Explained (book) · Free ETF diagrams
Related terms
Go deeper: books by Will Lee, CFA
For advisors, investors, and new team members: a jargon-light foundation in creation/redemption, intraday value, and common liquidity myths.
Get the ETF Liquidity Cheat Sheet
Subscribe to receive a free two-page ETF Liquidity Cheat Sheet, plus an occasional email when a new explainer is published.
No spam. Unsubscribe anytime.
Disclaimer
This material is provided for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security.
All views expressed are the author’s own and do not represent the views of any employer or affiliated organization.