The full name of ETF is ExchangeTradedFund, also known as exchange-traded fund, which is increasingly favored by investors in the investment field. However, the discount rate of ETF has always been a problem that puzzles investors. The discount rate of ETF refers to the difference between the net value of ETF and the price of its stock in the secondary market. If the price of ETF in the secondary market is higher than the net value, it is called discount. On the contrary, it is called premium. So is the ETF discount rate positive or negative? This paper analyzes and discusses this from many angles.

Calculation method of ETF discount rate

First, let's learn how to calculate the ETF discount rate. ETF trading fund managers publish the net value of ETF every day, which is obtained by dividing the net asset value by the number of shares issued. The price of stocks in the secondary market is determined by the relationship between market supply and demand, so the ETF price in the secondary market may be equal to, higher than or lower than the ETF net value. Then, the ETF discount rate is the difference between the ETF net value and the secondary market price, namely:

ETF discount rate =(ETF net value -ETF secondary market price) /ETF net value

Explanation of ETF discount rate

ETF discount rate is an important indicator reflecting the relationship between supply and demand in ETF market. It is usually between different ETFs and time periods, but it helps investors to understand the basic situation of ETF trading market, the operating ability of ETF companies and the attitude of ETF investors.

If the discount rate of ETF is positive, that is, the net value of ETF is greater than the price of ETF shares in the secondary market, then the market demand for ETF is greater than the market supply and demand for ETF. At this time, investors may buy ETFs in the secondary market in order to get higher prices in the future. However, if the discount rate of ETF is negative, that is, the net value of ETF is less than the price of ETF share in the secondary market, then the supply of ETF purchased by the market exceeds the market demand. At this point, investors may sell ETFs to lock in gains or avoid losses.

Reasons for ETF discount rate

Secondly, let's discuss the causes of ETF discount rate. There are many reasons for ETF discount rate and premium rate. First, the trading market is uneasy about the potential changes in ETF prices, which may lead to discounts. ETFs are easy to trade and usually have the liquidity advantage of small or large stock markets. However, if the prices of some stocks or other assets have undergone major changes or fluctuations in a short period of time, it may lead to the instability of ETF prices and lead to discounts.

Third, when investors' views on ETFs change, it may lead to discounts. ETF discount rate usually changes with investors' buying or selling behavior. For example, if the market demand for ETFs suddenly drops, it may cause a discount rate, because the net value of ETFs is higher than the price, and traders tend to sell.

Finally, the discount rate of ETF may be the performance of insufficient liquidity of ETF transactions. When the liquidity of ETF stocks decreases, ETF will have a premium or discount.