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Common and Exchange-traded Money Fund

PENDING ORDER: EUR/USD, GBP/USD, USD/JPY

Money fund is also known as “quasi-savings”. They have both good liquidity and interesting returns. They are one of the main tools for people’s cash management. What is the difference between an exchange-traded money fund and a common money fund?

Transaction Methods

Traditional currency funds are mainly traded through the fund company’s own channels, banks or over-the-counter channels of securities firms. Buying a currency fund is called “subscription”, and selling it is called “redemption”.
The main trading channel of exchange-traded money funds comes from the on-exchange channel trading of securities firms. And there are two trading methods: one is subscription or redemption in the primary market, and the second is buying and selling in the secondary market.
With the help of the exchange-traded model, exchange-traded money funds can better function as cash management tools.

Income Distribution Methods

In the primary market, the price at which investors subscribe/redeem the fund is the net value of the fund. The exception is that the income distribution of some exchange-traded money funds is different from that of traditional money funds, and the net value of fund shares can continue to grow day by day. Investors who subscribe and redeem can fully see the income of the fund shares during the holding period as long as the change in the net value of the fund shares. In the secondary market, the investment profit and loss can be simply calculated based on the bid-ask spread.
Exchange-traded funds generally distribute fund income on a daily basis, and the net value after income distribution is always kept at face value. The distributed income is linked to the OTC income account, and the carried forward income will participate in future income distribution. If the investor redeems the shares, the payment will be made in proportion to the proportion of the redemption; if the investor chooses to sell, the one-time payment will be made when all the shares are sold.

Arbitrage Opportunities

ETFs can trade on two different markets at the same time, at different prices.

Among them, in the primary market, the subscription and redemption are traded according to the net value of the exchange-traded fund, but in the secondary market, the purchase and sale of funds are based on the transaction price of the secondary market.

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