I liked the commentary on the current price action and environment discussed here:
Wasnt aware of the implications of the specific leveraged ETFs that were noted, except that from my understanding, momentum triggered crashes are all about when buying pressure drys up , and the sellers keep selling at pace based on price level selling pressure.
In the case of arbourtrage between divergant markets though. When the market thats importing is closed, it tends to impact buying pressure.
Not because of buyers in the market that "could" export, but by importers or traders unable to hedge their orders short on the destination market, because its closed, then they stop buying on the market thats open. (Short and long equal on opposing market = betting on price convergence of the spread)
Arbourtrage being in the sence that they profit when the prices eventually converge, and they unwind. Whether this occurs due to physical flows to the destination or from demands easing.
If those traders have 'positions closed' on the long side while the short side market is closed, then their balance of trade requires MORE unwinding in the destination market to return to balance, i.e, closing of shorts (buying back) to match the longs lost due to market volatility and premium increases.
That would result in a widened spread, and thus, a bigger gradient, which is the case now as the spread is now greater.
Still interesting that a handfull of leveraged funds were implicated, that was not something i was aware of.
