How ETFs Use 'Heartbeat' Trades to Wash Away Taxes

The video explains heartbeat trades, where banks or market makers invest large sums in ETFs temporarily to avoid taxes. It covers how ETFs work, their tax advantages, and the legal and financial implications of these trades. The video also compares ETFs with other investment funds, highlighting their tax deferral benefits. Special situations like index rebalancing are discussed, along with the mechanics of heartbeat trades, using an example to illustrate the process.

What is a heartbeat trade and why do banks or market makers engage in this practice?

How do ETFs create and redeem shares, and what role do brokers play in this process?

Discuss the implications of the legal opinions held by funds and banks regarding the tax compliance of heartbeat trades.

What are the tax advantages of ETFs compared to mutual funds, and how does this affect investors?

In what scenarios might heartbeat trades be considered a special situation, and what are the potential risks involved?