ETF fund is a transactional open-end index fund, also commonly known as Exchange Traded Funds (ETF), which is an open-end fund with variable fund share and listed on the exchange. It combines the operating characteristics of closed-end funds and open-end funds. Investors can purchase or redeem fund shares from fund management companies, and at the same time, they can buy and sell ETF shares in the secondary market at market prices like closed-end funds. However, the purchase and redemption must be exchanged for a basket of shares or a basket of shares.

Arbitrage, defined in finance, is the act of buying and selling or selling and buying the same or essentially the same securities at favorable prices in two different markets. The financial instruments in the portfolio can be the same or different. In market practice, the word arbitrage has a different meaning from the definition. In practice, arbitrage means a risky position, which may bring losses, but it is more likely to bring benefits.

in practice, there are two ways for ETF to achieve arbitrage. When ETF trades at a premium, that is, when the secondary market price is higher than its net value, the primary market participants of ETF can purchase SSE 5ETF in the primary market by buying the same combination as the basket of stocks announced by the fund on the same day, and then sell the corresponding share of SSE 5ETF in the exchange. In this way, if the transaction cost is not considered, the cost for investors to buy stocks in the stock market should be equal to the unit net value of ETF, because ETF is in the market.

however, when ETF trades at a discount, that is, when the secondary market price is lower than its net value, the arbitrage trader can obtain arbitrage income through the opposite operation. That is, participants in the primary market of ETFs can buy SSE 5ETF in the secondary market, redeem the same number of ETFs in the primary market (and get the portfolio stocks representing ETFs), and sell the redeemed stocks in the secondary market. If transaction costs and liquidity costs are not considered, then the value of the redeemed shares sold by investors in the secondary market should be equal to their net fund value. Since ETFs are traded at a discount, arbitrageurs can profit from them.

ETF secondary market transactions are similar to stocks, and investors can buy and sell ETF shares in cash through any securities company. The smallest unit of ETF secondary market transaction is one hand (1 copies per finger, about 1 yuan), and the capital threshold is low, so small funds can participate. The transaction cost of SSE 5ETF in the secondary market is much lower than that of traditional index funds, and the cost of frequent trading is low; Trading in the secondary market is similar to stocks, and the price fluctuates greatly during the trading day (unlike traditional open index funds, which only have one transaction price every day-the net value of fund shares), which is convenient for investors to gain income through band operation. In other words, the return of ETF comes from the fluctuation of index, not necessarily the unilateral rise. However, it is a pity that to carry out "T+", the capital must be more than 1 million yuan, and small and medium-sized investors have no chance to "T+".

good luck with your investment.