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An ETF typically appoints one or multiple Authorized Participants (aka APs) which are allowed to buy and redeem ETF shares directly with the fund, by exchanging the fund shares against a basket of the underlying securities. These APs are often the market makers and their arbitrage involves managing an inventory of underlying securities and fund shares. I can ...


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I've worked in this industry for a while and have run ETF market making for quite a few years. It's very difficult to perfectly lock in profit as you detailed above. With fast equipment it can be done sometimes. But most of the time you really are just hedging to model - and there is risk in that case. For example, you might sell ETF X and then hedge ...


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