Nadig: Anatomy Of A Monster ETF Trade

March 25, 2014

How BZF traded 1,000 times its normal volume, and didn’t skip a beat.

I clearly need a new hobby, because I love looking at charts that show strange ETF-trading anomalies.

And there’s not much of a bigger anomaly than a seemingly illiquid ETF that suddenly trades 27 million shares without a hitch.

But more than just being interesting, digging into how these monster trades work can help us understand not only how to better trade ETFs, but can lead to interesting insights into what’s going on in the market.

First, let’s look at the ETF in question, the WisdomTree Brazilian Real ETF (BZF | B-91).

BZF_Trades

As you can see, this is an ETF that simply doesn’t trade much.

While it’s had its moments in the sun, it’s not uncommon for BZF to trade just a few thousand shares in a day. But look at the two spikes on the volume chart, one in October 2013, the other in January 2014. And you can see another one—albeit a smaller one—in 2011.

When I see something like this, it’s usually pretty obvious that this is a big player getting in or out of a position. If it was a mass frenzy, it’s unlikely we’d see such a clean jump, without any real ramp up or down in volume on similar days. So the first step in understanding the trade is to see who owns it.

In a larger ETF, that kind of forensic analysis is pretty much impossible.

So many people own shares of, say, the iShares MSCI Emerging Markets ETF (EEM | B-100), and it trades so much, that hundreds of millions of dollars can change hands and be lost in the mix.

Here, however, a quick look at 13F regulatory filings made with the Securities and Exchange Commission shows who our likely trader is:

 

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