What Is the Difference Between the Primary and Secondary Market for an ETF?
The primary market is where ETF units are created and redeemed, in large blocks, between the investment manager and appointed participating dealers (dealer partisipan). Minimums there are institutional — for the gold ETFs, measured in hundreds of grams of gold — so it is not a route retail investors use. The secondary market is the Indonesia Stock Exchange, where existing units change hands between investors during trading hours in ordinary exchange lot sizes. That is the route behind any app-based purchase. This split is why you will see two wildly different "minimum investment" figures quoted for the same product: one describes creating units wholesale, the other describes buying them on the exchange. The two markets are connected — the primary market's creation and redemption mechanism is what keeps the exchange price anchored near the fund's underlying value.
| Primary market | Secondary market | |
|---|---|---|
| What happens | Units are created or redeemed | Existing units change hands |
| Who participates | Investment manager and participating dealers | Any investor with a securities account |
| Where | Directly with the investment manager | Indonesia Stock Exchange |
| Scale | Institutional blocks | Ordinary exchange lot sizes |
| Who uses it | Institutions and appointed dealers | Retail investors |
| Effect on unit supply | Increases or decreases total units | No change to total units |
- What a participating dealer does. A participating dealer is a securities firm appointed to create and redeem units with the investment manager. Only these appointed firms can transact in the primary market, and they are the mechanism through which the supply of units responds to demand.
- Why the two markets need each other. If exchange demand pushes the price above underlying value, a dealer can create new units and sell them into the market, pushing the price back down. If the price falls below, units can be redeemed. This arbitrage is what stops market price drifting far from net asset value.
- Why it works less well on new products. The mechanism depends on dealers being active. On funds with days of trading history rather than years, that activity is still building — which is part of why price gaps can be wider right now.
- What this means for you. You transact in the secondary market. The primary market matters to you indirectly, as the thing keeping the price you see honest — not as a route you would ever use.
Related questions:
Q: Why do I see minimums quoted in hundreds of grams of gold?
Those figures describe the primary market, where units are created directly with the investment manager in institutional blocks. They do not describe what a retail investor needs to buy units on the exchange. When you see two very different minimums quoted for the same ETF, this is almost always the reason — check which market the figure refers to.
Q: Can I become a participating dealer or use that route?
No. Participating dealers are securities firms specifically appointed for that role by the investment manager, and the primary market is closed to individual investors. Your route is the secondary market — buying and selling existing units on the exchange, which is what any app-based transaction uses.
Q: Does buying on the exchange mean I'm not really investing in the fund?
You are. Units bought on the secondary market are the same units, carrying the same claim on the fund, as units created in the primary market. The only difference is who you bought them from — another investor rather than the fund itself. Your position and your rights as a unit holder are identical either way.
Q: What is the creation and redemption mechanism for?
It lets the total number of units outstanding grow or shrink in response to demand, which is what keeps an ETF's market price tethered to its underlying value. Without it, price could drift far from what the fund's assets are worth. The mechanism also matters for sharia compliance — the governing fatwa specifically addresses how units may be created and redeemed.