What is an ETF's tracking basket?

ETFs publish information that helps market makers price and hedge them, often referred to as the creation/redemption basket or indicative basket. This guides how shares are created/redeemed and how arbitrage works.

When the basket is transparent and the underlying holdings are liquid, market makers can hedge efficiently and spreads tend to be tighter.

For investors, you don't need to trade the basket, but the concept matters because it explains why some ETFs trade smoothly and others have wider spreads. Complexity and illiquidity in the underlying holdings often show up in trading costs.