Hfearless wrote: ↑Fri Nov 12, 2021 3:57 pm
Does that mean Adam’s order immediately caused a WisdomTree-run bot to buy some more of the underlying instruments and to sell him the brand new ETF shares?
This is the kind of detail I was wondering about, in relation to some of the lower-volume LETFs that we have discussed throughout these threads. One of my worries with choosing a maximum allocation to something like TYD was the total AUM and average daily volume.
We are told that Authorized Participants can create and redeem units of the ETF, using purchases or sales of the underlying assets within the ETF. I just found some basic explanations on the Web but I don't recall ever finding details on points like:
1- How can Direxion or Proshares actually create units during a trading day if a large chunk of the underlying assets are not simple stocks but custom equity/ bond swaps? Do they mark down any additional exposure that was added and deal with the investment banks to adjust the swap value, at end-of-day?
2a- How is the actual practice of creation or redemption applied. Let's say that I buy 100 shares of TYD, but there is insufficient counter-parties to complete the transaction. How long do the APs wait before filling my order? Does the order have to be an explicit Market Order? Does a Limit Order at or beyond the latest transaction price get accounted for?
2b- Likewise, and what worries me more, what happens when I want to sell 100 shares at a reasonable price (close to last transaction) and there are no buyers? Would an AP swoop in to buy them? If so, at what point and in what way (some bots like you mentioned)?
All these worries about liquidity we've been discussing might be a moot point, if there is a solid process in place to create liquidity. Even if there was price inefficiency due to this, I imagine it being worth it to dive in nonetheless, instead of staying on the sidelines due to the fear of being stuck as a giant whale that owns a large chunk of the ETF units and being unable to transact.