ETFs trade intraday near NAV because of a mechanism mutual funds lack: the creation/redemption process. Authorized Participants (APs) — large broker-dealers — can exchange a basket of the ETF's underlying securities for new ETF shares (creation) or swap ETF shares back for the basket (redemption), typically in 50,000-share blocks called creation units.

When the ETF price drifts above NAV, APs buy the basket cheaply, create shares, and sell them at the premium — pushing price back down. When it trades at a discount, they buy ETF shares and redeem for the basket. This arbitrage keeps premiums/discounts tiny.

In-kind transfers mean no cash changes hands — and no taxable event for the fund.
APs profit from the spread; ordinary investors benefit from tighter tracking.
Wide spreads or halted arbitrage (e.g., March 2020 bond ETFs) can widen premiums.

Market price	NAV	AP action	Effect
$100.50	$100.00	Create & sell	Price falls
$99.50	$100.00	Buy & redeem	Price rises