# Arbitrage

PREMIUM=CREATE+SELL

-buy underlying basket

-deliver underlying basket to ETF

-receive ETF shares

-sell etf shares

DISCOUNT=BUY+REDEEM

-buy etf shares

-deliver etf shares

-receive underlying basket

-sell underlying basket

**Maintaining fair value through arbitrage**

Arbitrage is a profit opportunity that helps ensure an ETF’s share price in the secondary market remains tightly correlated to the value of the securities held in the ETF portfolio. To the extent that an ETF’s share price strays from the fair value of its portfolio securities, APs will “arbitrage” the difference.

If the market price of the ETF is above its NAV, an AP could purchase the underlying basket of securities and short-sell<sup>1</sup> the ETF. Later the AP will execute a creation event, with the new ETF shares covering the short-sell position. The opposite occurs when the market price of the ETF is below its NAV. In this case, the AP would buy the ETF and short-sell the underlying basket of securities, and later execute a redemption event to cover the short position in the underlying basket.

<figure><img src="/files/kjRXYXBhMSA1bWq2lNCz" alt="" width="563"><figcaption></figcaption></figure>

PREMIUM=CREATE+SELL

DISCOUNT=BUY+REDEEM

Spread % = (Price − NAV) ÷ NAV × 100

Create to lend

<figure><img src="/files/EhTYCfJf9pbq7TMOnvTd" alt="" width="375"><figcaption></figcaption></figure>

RESOURCES

[Authorised participants and market makers](https://www.blackrock.com/au/insights/ishares/authorised-participants-and-market-makers)

[ETF Creation/Redemption Process: Behind the Scenes](https://www.wisdomtree.com/investments/blog/2020/04/23/etf-creation-redemption-process-behind-the-scenes)

<https://www.ssga.com/us/en/intermediary/resources/education/understanding-the-etf-liquidity-ecosystem>

<https://www.rexshares.com/etfs-under-the-hood/>


---

# Agent Instructions: Querying This Documentation

If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question.

Perform an HTTP GET request on the current page URL with the `ask` query parameter:

```
GET https://docs.xft.finance/bitnet/clearing-and-settlement/etfs/arbitrage.md?ask=<question>
```

The question should be specific, self-contained, and written in natural language.
The response will contain a direct answer to the question and relevant excerpts and sources from the documentation.

Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.