Premium Definition
Learn the definition of premium and other ETF terminology from the etf.com glossary.
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A Premium in the context of ETFs materializes when the market price of the ETF's shares surpasses the Net Asset Value (NAV) per share. This phenomenon often occurs due to increased demand, causing scarcity in available shares. Investors purchasing ETF shares at a premium may experience a higher cost, reflecting the market's enthusiasm for the fund. While premiums can present challenges, they also indicate robust investor interest, potentially leading to increased liquidity and market depth, benefiting all participants. Understanding premiums is crucial for investors navigating the nuances of ETF pricing dynamics and optimizing their trading strategies.