Creation Unit

DEFINITION of 'Creation Unit'

A set of shares or securities that makes up one unit of a fund held by the trust that underlies an exchange-traded fund (ETF). One creation unit is the denomination of underlying assets that can be redeemed for a certain number of ETF shares.

BREAKING DOWN 'Creation Unit'

Creation units can vary in size; with most containing between 25,000 and 600,000 ETF shares each. The use of creation units in the construction of ETF shares is critical because they allow for the representation of the underlying assets - the ETF shares, which represent a tiny chunk of a creation share - to be traded intraday. The ability to trade ETFs on an exchange gives them a significant advantage over comparable investment vehicles, such as mutual funds.

RELATED TERMS
  1. ETF Sponsor

    The company or financial institution which creates and administers ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. ETF Of ETFs

    An exchange-traded fund (ETF) that tracks other ETFs rather than ...
  4. Redemption Mechanism

    Refers to how market makers of exchange traded funds (ETF) can ...
  5. Index ETF

    Exchange-traded funds that follow a specific benchmark index ...
  6. Authorized Participant

    An entity chosen by an exchange-traded fund's (ETF) sponsor to ...
Related Articles
  1. ETFs & Mutual Funds

    An Inside Look At ETF Construction

    If you're an investor who likes to understand how and why your investment products work, this article is for you!
  2. ETFs & Mutual Funds

    5 Reasons to Pick ETFs Over Mutual Funds

    Discover five reasons why average investors and sophisticated hedge funds choose ETFs instead of mutual funds to meet their investment goals.
  3. Investing

    A Look At the Growth Of the ETF Industry

    Explore the phenomenal growth rate of the ETF industry, and learn some of the principal reasons why ETFs are projected to continue to grow at a rapid pace.
  4. Financial Advisor

    What Your Clients Must Know About ETFs

    Like any investment, ETFs come with some fine print. Here is what advisors should reveal to their clients about these hugely popular products.
  5. ETFs & Mutual Funds

    When Is the Right Time to Change From Mutual Funds to ETFs

    Find out how to determine when it's the right time for you to switch from mutual funds to ETFs, including the benefits of ETFs and who they are best for.
  6. ETFs & Mutual Funds

    Actively-Managed ETFs: Risks And Benefits For Investors

    Find out how these second-generation ETFs are changing the marketplace.
  7. ETFs & Mutual Funds

    4 Trends in the ETF Market to Date in 2016 (SPY)

    Learn about four emerging ETF trends in 2016, including what they signal about broader trends in investing and the financial services industry.
  8. ETFs & Mutual Funds

    The Advantages of ETFs Compared to Index Funds

    With the ongoing ETF boom, ETFs gain more variety and increased competition in the market leads to further investors' advantages compared to index funds.
  9. Financial Advisor

    5 Things All Financial Advisors Should Know About ETFs

    Discover five things all financial advisors should know about ETFs, including when ETFs may be a better choice for your clients than mutual funds.
  10. ETFs & Mutual Funds

    Building An All-ETF Portfolio

    Balance is the key when selecting an all-ETF portfolio that will hedge against market volatility.
RELATED FAQS
  1. How are new exchange traded funds (ETFs) created?

    Read about how exchange-traded funds are proposed to the SEC, created with underlying assets, sold to authorized participants ... Read Answer >>
  2. Is there an ETF composed of other ETFs?

  3. Do ETFs pay capital gains?

    Learn about exchange-traded funds (ETFs), which can generate capital gains for their shareholders due to occasional and substantial ... Read Answer >>
  4. How can I check to see if an ETF’s price reflects its asset value?

    Learn how an investor can find the net asset value for an exchange-traded fund and why the net asset value and market value ... Read Answer >>
  5. What strategies are used in a redemption mechanism?

    Find out how the ETF redemption mechanism works and how authorized participants arbitrage ETF shares to bring them in line ... Read Answer >>
  6. What are the regulations involved in releasing an ETF on the open market?

    Learn how an exchange traded fund comes to life, and find out about regulations surrounding ETF release from the Investment ... Read Answer >>
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center