Many people hold a fixed belief: Active ETFs are simply a direct relocation of traditional OTC (off-exchange) active funds onto the exchange. However, this is not the case, as there are significant differences in their operating frameworks. Active ETFs build their complete operating system based on the unique dual-market mechanism of ETFs, possessing an independent and dedicated operational cycle. Today, we will guide you through the complete operational logic of active ETFs.

ETFs naturally have two markets: the primary market and the secondary market. These two channels operate in parallel and are interconnected, which is the most crucial difference between ETFs and OTC active funds. The secondary market is open to all investors. Ordinary investors and various institutions can place orders to trade ETF shares in real-time during trading hours, just like trading stocks. The final transaction price is determined by the real-time supply and demand dynamics of on-exchange buying and selling. The primary market, on the other hand, is primarily for institutional investors, with high entry barriers in terms of capital and professional expertise. Ordinary investors generally cannot participate directly. Its core function is to adjust the total outstanding shares of the ETF. Simply put, in the secondary market, investors transfer existing ETF shares among themselves. In the primary market, professional investors complete the creation and redemption of large blocks of shares, thereby regulating the total circulating supply.

To use a real-world analogy: OTC active funds are like offline physical stores. All subscriptions and redemptions are processed uniformly after market close, all fund flows are settled in cash, and portfolio information updates are slow. Active ETFs are more like an online store with a large warehousing and logistics center. The fund manager independently selects and adjusts the underlying stock portfolio. The "secondary market storefront" is open to all investors, allowing trading at any time during market hours. The "primary market warehousing and logistics center" is only accessible to certain investors, who can replenish or clear inventory at any time. They exchange a basket of stocks for large blocks of ETF shares, stabilizing the trading price by adjusting the on-exchange circulating supply. Meanwhile, the fund discloses its portfolio holdings daily, making its operations clear and transparent.

The ETF operational model provides active ETFs with three major advantages over traditional active equity funds. First, higher trading efficiency and flexible capital use. Unlike OTC active funds, which typically take T+1 or even T+2 days to confirm share subscriptions, buying and selling active ETFs on the exchange follows the same rules as stocks. Shares bought on a given day can be sold on the next trading day. The proceeds from a sale are available for use the same day and can be withdrawn the next day. This suits investors who need flexible portfolio adjustments or engage in swing trading, and it also allows for timely responses to sudden market events. Second, greater information transparency. Compared to the lagging quarterly disclosures of OTC active funds, active ETFs disclose their Portfolio Composition File (PCF) daily. This more timely portfolio disclosure allows investors to more clearly understand the fund's holdings changes, reducing the investment risk of "style drift" and providing greater investment certainty. Third, lower transaction costs compared to OTC active funds. Without considering channel discounts, OTC active fund subscription fees are typically around 1.5%, and redemption fees decrease with the holding period, making short-term trading costs high. For active ETFs, on-exchange trading only incurs brokerage commissions, making the cost of a round-trip trade much lower than OTC subscriptions and redemptions. This makes them suitable for investors with a certain frequency of trading.

These advantages are all granted to active ETFs by the ETF trading mechanism. However, unlike traditional, mature passive ETFs, active ETFs face more challenges, especially in their operation. The creation and redemption process for active ETFs is much more complex than for traditional passive ETFs. This difference mainly stems from the differing investment strategies. Traditional passive ETFs primarily track an index. The constituent stocks and adjustment cadence are largely fixed, allowing for a stable output of the PCF list. Active ETFs are entirely different. Their holdings change daily, necessitating the PCF list to be generated dynamically each day. This must be done simultaneously with real-time verification of the Intraday Indicative Value (IOPV), matching creation and redemption baskets, and monitoring for style drift. Consequently, the challenges they face are correspondingly greater.

Only by thoroughly understanding the complete operational logic of active ETFs can one distinguish the fundamental operating differences between them and OTC active funds, avoiding the misconception that they are "simply a relocation of OTC funds onto the exchange." With this understanding, investors can participate rationally based on their own trading habits. The confidence for investing always comes from understanding, clarifying, and *then* acting. Active E Point, opening a new horizon for investment!

Risk Disclaimer: These views are for reference only and will change with market conditions. They do not constitute any investment advice or commitment. The products mentioned in the text are equity funds, which belong to securities investment fund products with relatively high expected risk and return. Their expected return and risk levels are higher than hybrid funds, bond funds, and money market funds. If you wish to purchase related fund products, please carefully read the fund's "Fund Contract," "Prospectus," and other fund legal documents, and select products matching your risk level. Funds carry risks; invest with caution. MACD golden cross signal formed; these stocks are showing good momentum!