Fund and Forward Pricing Explained

Funds utilise Forward Pricing which means you will not know the true price you are buying or sold at until the next pricing – it usually happens once a day.

Therefore, until the trade is complete, you will not know the exact price.

For example, let’s say you place an instruction to trade a fund at 11am on Thursday, but the fund is priced once a day at 1PM. The trade will be carried out or executed at 1PM at that price (which you will not know before).

Likewise, if you placed trade to buy or sell a fund at 4PM on Tuesday, you would not know the price until 11AM on Wednesday.

There are a number of reasons why funds price in this way – one of the major reasons is to stop the prospect of investors freely buying and selling funds for the short-term. This would cause much inconvenience to the fund manager given the fund consists of many shares or holdings.

It may be concerning when you look to sell a fund and an adviser will tell you that you don’t know the price until the next day. However, as a fund is made up of lots of holdings, it is rare to see a large rise / fall in the following day’s price (except for very unique circumstances such as a market crash).

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