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What is historic pricing?

By Kathryn Davies

Reviewed by Vanessa Kintu

Fact checked by jlysons

Historic Pricing

Historic pricing means using the preceding price to calculate the value of a financial instrument, often when the current value isn’t available.

Historic pricing explained

For investors, knowing the value of a fund is an important consideration when developing an investment strategy that uses funds or when deciding whether to trade in or out of a fund.  However, funds don’t usually provide real-time valuation pricing, so historic pricing is a method that can be used to determine the value of the fund at the time, or Net Asset Value (NAV).

The investor could use the preceding price, to calculate the value and make the investment decision. However, it is worth keeping in mind that the information being used is old information, which could result in inaccuracies in the NAV calculation.

Understanding historic pricing and its risks

When using the historic pricing method, it is important to know when the asset was valued. Was it at a certain time in the day? Sometimes funds are valued several times across a trading day. Mutual funds, for example, are usually valued at the end of each trading day.

Only by knowing the valuation can an investor calculate the number of shares that can be bought with a given amount of investment capital. Equally, only by knowing the valuation can an investor determine how much they could get in return for selling a specific number of shares.

Prices and values of funds fluctuate, which creates risk. The risk is that the old price will have changed compared with the actual price to buy or sell shares in the fund. As such, the buyer runs the risk that the NAV of the fund will have dropped by the next valuation. In which case they will have paid over the odds for the shares. For the seller, the risk stems from the possibility of the NAV increasing in value at the next valuation point, and they miss out on potential gains possible from the current valuation point.

Historic versus forward pricing

Forward pricing is an alternative to historic pricing and is used more frequently, especially in open-ended funds. While historic pricing is based on the last valuation, forward pricing is based on the next valuation.

By using forward pricing, the investor knows that the deal will be based on the next valuation point. However, if investing a specific sum, the number of shares received (or the cash received for shares sold) will be unknown.

However, when considering whether to invest in a fund, you should always do your own research, considering the outlook and relevant market conditions. There are no guarantees. Investors should conduct their own analysis, taking into account such things as their risk tolerance. And never invest more money than you cannot afford to lose.

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