Question

Hi Anna,

First; thank you for sharing your knowledge and your experience through your books and your website.
 Just finished reading your book on volume and I am wondering if ETF funds following specific indexes such as SPY, QQQ etc., also have “insiders” / market makers / specialist etc., to be able to move the markets so they can buy at wholesale and sell at retail?

I have also searched for an answer to know if indices such as SPX move the ETFs such as SPY or will ETFs also move the Indices. What if SPX is falling (due to S&P 500 stocks) and big operators are buying SPY – what is the net effect on this? 

I know you are extremely busy. I will patiently await your answer.
Thank you

Answer

Hi –  many thanks for your email and apologies for the delay in replying. Thank you also for your very kind comments which are much appreciated and I’m so pleased you are enjoying reading the books and finding them useful.

With regard to your question, one of the beauties of volume price analysis, is that it can be applied to any market, as long as volume is reported, and the ETF market is another where this approach works perfectly. As I’m sure you know, ETF’s trade in a similar way to stocks, but actually exist in two different markets – the primary market and the secondary market. The first is where institutional investors create and redeem them, and the secondary market where individual investors buy and sell them. The primary market is managed by the market makers who provide the liquidity for the retail market, and on occasion will also act as participating dealers, in authorizing and redeeming ETF’s themselves! So to answer the first part of your question, the short answer is yes, and the market makers are there in just the same way as for stocks, and other markets, with the same conflict of interest and the ability to see both sides of the market.

With regard to how these instruments work and their relationships to the underlying, again as I’m sure you know, there are many different types, some correlate directly and others work inversely, whilst others still are leveraged. I have received many emails over the years from traders who have lost huge amounts trading an ETF which they did not realise was in fact a leveraged product, so always check that you understand EXACTLY the instrument you are trading. Some ETF’s are underwritten with the physical assets.

However what you will tend to find with those that have a direct relationship with the cash index for example, is that the price action will be similar, if not identical as you might expect, and in many ways will also reflect price action in the Emini market such as the ES Emini. An ETF is another excellent way to provide a different perspective on an instrument with the activity of the market makers once again revealed in the volume price relationship, and indeed for forex traders two of the most popular to track are the UUP and the UDN. The UUP the USD index bullish fund, whilst the UDN is the bearish equivalent, with both giving an alternative view to the more traditional DXY, and of course with volume. I hope the above helps and many thanks once again – wishing you every success in your own trading, Kind regards – Anna

By Anna Coulling