I am looking at GDX etf on finance.google.com and I am trying to understand what causes the volume to spike more than 10x at the very last trade of each day.
Any thoughts?
Not sure exactly what you’re looking at, but could the # be an aggregation of the total daily volume along with the official closing price?
Any google finance nuance aside, this is pretty much the case with every stock/fund. Big volume on the open/close - quick look at GDX shows 10x the volume is pretty common compared to some light volume periods around lunch.
Outside of that - it’s probably just AFs resident gold bug Sweep The Leg cornering the market.
This
Presumably there are a lot of day traders that have to close or cover positions so as to have zero overnight risk. That is one reason for a volume spike at the end of the day.
For ETFs, there may be more basket trades happening to create or redeem units. This makes some sense, since waiting unitil late in the day allows prices to diverge from the replicating portfolio a little more, and therefore offers more profit to arbitrageurs (assuming a different arbitrageuer doesn’t beat them to the punch).
I’m going with HFTs for the win. I think it’s only a matter of time before the ETF market completely blows up. Wouldn’t be a horrible thing either. They’re more exensive than they appear, they cause higher correlations, and don’t even get me started to what they do to the commodities market.
I’m not quite sure of the specific reasons why volume spikes for that ETF, but I think the general increase in volume at end of day trading is caused by index fund trading.
Lets take a look at an open-ended S&P 500 mutual mutual… the objective of this fund is to perfectly match the performance of the underlying index; if the index gains 2.23% for the day the mutual fund also has to increase by 2.23% for the day.
A simple calcuation on the daily return of an index is (Last Closing Price - Opening Price)/Opening Price. If the mutual fund makes any trades intraday, the trade will subject to intraday volatility and will cause gain/loss which will cause tracking error from the underlying index.
The only way for an index to achieve the the goal of performance matching is to try to place all buy orders at the opening price and all sell orders at the end of the day, so all trades can be as close to the opening/closing prices as they can.
Now market makers knows this and they often front run these trades! So index trading often gets hit with trade implementation costs. There was a WSJ article about this a month or so back ago.
You guys are overthinking this - yes HFT/MM are a large % of volume, but that’s generally the case. HFT/MM don’t create volume they just process it (mostly). The reason for the volume spikes on the open/close is just because markets are discontinuous. It’s a result of having an open/close.
Sure, this looks like a perfectly healthy market.
http://www.zerohedge.com/news/2013-08-05/hft-quote-churn-spam-soars-record-volume-plummets