ETF hedging / arbitrage resources (+ Flow Traders Case Study)

Based on the most helpful WSO content, here’s what you need to know:

1. Understanding ETF Hedging and Arbitrage Basics:

   • ETF arbitrage often involves identifying mispricings between an ETF and its underlying assets or between two ETFs. For example, if ETF A is 50% stock X and ETF B is 25% stock X, you might hedge ETF A in terms of ETF B and stock X. To hedge in terms of stock X, you could buy 1 share of ETF A and short 1/2 of stock X to remain delta neutral. Similarly, to hedge A with ETF B, you could be long 1 share of ETF A and short 2 shares of ETF B.
   • The concept of "delta neutral" means creating a position where the net change in value due to price movements of the underlying asset is zero. This is crucial for hedging strategies.

2. Resources to Learn ETF Arbitrage and Hedging:

   • TraderMath.org: This platform mimics the Flow Traders test format (75 questions, 3 sections, 10 minutes). It’s a great way to practice mental math and quick calculations under pressure.
   • Glassdoor: Many technical questions for Flow Traders interviews are reused from Glassdoor. Reviewing these can give you a sense of the types of problems you might face.
   • WSO Academy: Consider exploring WSO’s financial modeling resources, which include lessons on hedging and arbitrage strategies.

3. Flow Traders Final Round Case Study Insights:

   • The case study often revolves around ETF hedging and mispricing spotting. You’ll need to demonstrate your ability to calculate and execute hedging strategies quickly and accurately.
   • Be prepared for psychological pressure. Interviewers may intentionally challenge your answers or create distractions (e.g., claiming your mic/video cut out) to test your composure.
   • Mental math is critical. Previous candidates have mentioned fill-in-the-blank math tests and multiple-choice questions in earlier rounds, so ensure your calculations are sharp.

4. Preparation Tips:

   • Practice solving puzzles and logic problems under time constraints. For example, puzzles like filling a triangle with numbers or calculating precise times using hourglasses have been mentioned in interviews.
   • Familiarize yourself with ETF pricing formulas and the mechanics of arbitrage.
   • Stay calm under pressure. Interviewers may try to make you second-guess yourself, so trust your calculations and reasoning.

5. Additional Advice:

   • Review the WSO threads on Flow Traders for firsthand experiences and tips from other candidates.
   • Focus on understanding the mechanics of ETF hedging and arbitrage with actual numbers, as this is a core part of the case study.

Good luck with your preparation! If you need more specific resources or examples, feel free to ask.

Sources: Flow Traders Test, Preparing for interview process at Flow Traders, Flow Traders Case study, The Asymmetric Risk Profile: Preparing for the Hedge Fund Interview, I'm bored: Macro Hedge Fund PM Q&A