ETF's that track indicies?

wh92stang said:

I have been wondering for a while how the ETF's that track indicies maintin a comparable price for the index or commodity they follow. I'm talking mainly about the SPY (S&P 500 spider), GLD (gold), UNG (US Natural Gas Fund), and USO (US Oil fund).

With a stock, the price is formed strictly by supply/demand. With these ETF's, there is a supply/demand market, but they also must maintain a relationship with the index or commodity they are tied to. Can anyone explain this to me?

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Glenn said:

What is missing here are the quoted prices.
An ETF is just like a stock. It's bid/ask quotes change all the time, but the chart only changes when someone buys or sells.
If a particular ETF is not very liquid then you'll get occasional step-changes in the chart, as you can see in the above examples from Martinghoul.
Watch the quotes and see for yourself.

Glenn

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Martinghoul said:

True dat, to some extent, although I am not sure whether I'd describe any of the above funds as 'not very liquid'... Regardless, I think you'll agree with me, Glenn, that the well-advertised issues with the USO (that you can see in the chart easily) go beyond the bid/ask problem you have described.

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Glenn said:

Well I know nothing about that particular ETF, but if you compare it to the one on Yahoo
http://finance.yahoo.com/q/bc?s=USO
there appears to be something amiss.
It makes no sense to me for an ETF (which is a stock) to go below zero.

As reqards lack of liquidity, the first of your charts is a good example from March onwards. Noone bought that ETF until May !

Glenn

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