It's far from mirroring it exactly, but it's not very far off and closer than any other oil ETF I've seen (is there a better one?). Futures are too complicated and short-term so I'm considering this ETF to hold long-term.How does the share price of the ETF United States Oil (USO) manage to mirror the oil price?
The ETF performs this by holding actual oil futures. There are also institutional investors in the ETF who can redeem their shares for the underlying assets (an individual investor is not given this privilege).
This allows the larger investors to keep the ETF in line with the underlying asset by buying out the underlying asset when it is undervalued in the ETF (thus driving the price up) or selling it in when it is overvalued (thus lowering the price).
It is theoretically possible for a person or group of people to cause the ETF to diverge significantly from its underlying asset by buying up the available shares and not releasing them for sale, but there isn't a terribly good reason to do this.How does the share price of the ETF United States Oil (USO) manage to mirror the oil price?
Well, when the oil price goes down, some investors will panic and sell their shares of the ETF. It takes a little longer to mimic because the ETF price is more inelastic, investors take more time to make decisions, kind of like how food prices didn't go down as fast when oil prices went down.
i think it's difficult for oil ETF to mirror oil price in short term, but in long term, it would be better.
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