Correlated Trading Vehicles for Providing ETF Liquidity
When there are products that correlate very well to each other, participants can trade them against each other, thus driving trading volumes in each. The broad-based emerging markets funds are an example of this type of trading. Even though the underlying baskets are closed during the U.S. trading day, traders have developed trading relationships between EEM and VWO and DEM and trade those three products against each other. In addition, they have found ways to formulate baskets of other ETFs that also correlate well for strategies. This, in turn, drives volumes in the ETFs as traders pursue various strategies against each other, even though the underlying basket is not presenting any liquidity ...
Get Visual Guide to ETFs now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
