ETFs and fair value

An exchange-traded fund (ETF) is a single security that holds a basket of other securities. You buy or sell one ETF share on an exchange and, underneath, own a slice of every name in the basket. It trades intraday like a stock but represents the whole basket, so its price should track what the basket is worth.

That "what it is worth" number is the ETF's fair value (its theoretical price). In this trainer each ETF backs a fixed number of units, called its index ratio, so fair value is just the basket's market cap spread over those units: