Who Moves Markets? Inside the Mechanics of a Sell-Off

Note: This is marketing material. This article is not investment advice. Capital is at risk.

Who is in the market?

Last week, the Nasdaq-100 fell 6.4%, its worst day since March 2020, wiping around $2.3 trillion from the market. Political concerns over AI data-centre spending sparked the sell-off, but systematic positioning and volatility-control funds amplified it into a broader, less discriminating move.

According to Cboe notional volume on November 5, 2026, U.S. equity turnover was approximately $1.79 trillion.

According to estimates by Barclays Private Bank, citing Bloomberg data, retail accounts for about 20% of total daily volumes, non-bank market makers and high-frequency trading account for 44%, and the institutional buy side, including asset managers, pension funds and hedge funds, accounts for 20.9%.

Pivotal Path highlighted rising leverage, concentration and significant holdings overlap among the 10 largest multi-strategy funds. This creates a key market risk: when highly leveraged funds cut exposure simultaneously, they can be forced to sell the same crowded trades, accelerating declines and volatility.

Hedge funds had already started cutting exposure in October. Goldman Sachs recorded the first month since 2016 in which both fundamental long-short and systematic hedge fund strategies fell more than 3%. Its clients’ long sales also outpaced short sales four-to-one, pointing to de-risking rather than outright bearishness.

Nomura’s cross-asset strategist Charlie McElligott says fund managers are increasingly focused on protecting remaining gains. According to Stephen Innes, after heavy drawdowns, managers are reluctant to buy even attractive stocks if it risks deepening November losses.

What is degrossing?

What does 2x gross leverage look like?

• £100 of a fund’s own capital
• £100 borrowed
• £200 invested in equities

If the investments fall 10%, their value drops from £200 to £180. After accounting for the £100 debt, the fund’s equity has fallen from £100 to £80, a 20% loss.

If the fund must return to 2x leverage, it can now hold only £160 of exposure:

• Required exposure: £80 × 2 = £160
• Current exposure: £180
• Forced sale: £20

The fund sells after prices have already fallen. Those sales push prices lower, potentially causing other leveraged investors to breach their limits.

Who is normally forced to deleverage and mechanically control flows?

1. Volatility-control funds

These strategies target a relatively stable level of portfolio volatility.

A simplified rule is:

Target exposure = volatility target ÷ current volatility

A fund targeting 10% volatility might behave like this:

When volatility suddenly doubles, the fund may need to cut exposure substantially. Charlie McElligott estimated around $61 billion of potential volatility-control selling using models that infer how these strategies would reduce equity exposure as realised volatility rises. This was a conditional model estimate rather than $61 billion of confirmed transactions, and execution can lag the triggering market move.

For scale, $61 billion is equivalent to around 3.4% of the $1.79 trillion of U.S. cash-equity notional traded on November 5. This is a scale comparison rather than a market-share estimate because the modelled flow does not necessarily represent $61 billion executed directly in cash equities.

2. Commodity trading advisers and trend-following funds

Trend-following quants, called commodity trading advisers, or CTAs, use price trends and momentum signals across equities, bonds, currencies and commodities.

If a previously rising equity market suddenly breaks important trend levels, CTAs may:

1. Reduce existing long positions.
2. Move towards neutral positioning.
3. Eventually establish short positions if the negative trend persists.

These adjustments can happen across several days and may continue even after the original news has passed.

Bloomberg reported that CTAs sold about $13 billion across S&P 500 and Nasdaq futures, according to Vanda estimates, taking their exposure near the lowest level in its data.

3. Risk-parity funds

Risk-parity portfolios allocate according to each asset’s contribution to total risk, rather than simply allocating a fixed amount of money to stocks and bonds.

They generally rely on bonds offsetting equity risk. Problems arise when:

• Stocks and bonds fall together.
• Bond volatility rises.
• Correlations between asset classes become more positive.
• The portfolio’s total volatility exceeds its target.

4. Leveraged hedge funds

A long-short hedge fund might be long selected technology shares while shorting an index or weaker companies.

If its long positions fall much more sharply than its shorts, the fund loses money even if its net market exposure is relatively low. Its broker may then demand additional collateral or reduce available financing.

The fund may respond by selling longs and buying back shorts. This can produce unusual moves:

• Crowded winners fall sharply.
• Heavily shorted or low-quality shares rally.
• Traditional relationships temporarily break down.

The GS Hedge Fund VIP Index tracks around 50 U.S. stocks that appear most frequently among the top 10 holdings of fundamentally driven U.S. hedge funds. It uses SEC 13F filings to identify these popular positions, then equal-weights the selected stocks and rebalances the index quarterly.

The key drawback is that it is backward-looking. 13F filings are only submitted quarterly and can be filed up to 45 days after quarter-end, meaning a hedge fund may have already reduced or exited a position before the index reflects it. It is potentially useful for identifying historically crowded hedge-fund longs, but not real-time positioning or deleveraging.

The list of 50 positions held by the ETF tracking the index is included at the end of the article.

5. Options dealers

Dealers hedge the options they have sold to investors.

When markets fall, dealer hedging can sometimes require them to sell increasing amounts of the underlying market. This is often described as negative gamma. This is particularly important near heavily traded option strikes and during large daily moves.

Bloomberg reported that, midway through Thursday’s sell-off, dealer negative gamma was at about $7 billion for every 1% move. This meant every 1% decline generated another $7 billion in selling, according to estimates from Charlie McElligott.

6. Retail accounts and leveraged ETFs

Stocks now account for more than 30% of total U.S. household assets, compared with around 25% for real estate, with technology stocks making up a growing share of equity exposure. This greater concentration in equities could amplify the impact of sharp market corrections on household wealth and may also help explain the heavier selling and lack of dip-buying seen on Thursday, as investors moved to reduce risk.

Leveraged ETF rebalancing generated an estimated $56.4 billion in net equity reduction on November 5, according to Barclays. This is equivalent to roughly 3.1% of the day’s U.S. cash-equity turnover. Leveraged ETFs typically maintain their target exposure using derivatives, including swaps and futures, meaning that when markets fall, leveraged long funds are forced to reduce exposure as part of their daily rebalancing. According to Nomura’s quantitative model, the November 5 move would rank as the largest selling rebalance in the historical series, exceeding the previous $51.3 billion adjustment on June 5.

That does not mean systematic strategies accounted for only 3.1% of the market decline. Their flows were unusually directional, mechanically triggered and concentrated late in the session, while discretionary traders may also have amplified the move by selling ahead of expected rebalancing. Markets are priced at the margin, so a comparatively small amount of urgent, one-way selling can produce a much larger decline in overall market capitalisation.

What can you do?

If you are a long-term investor

1. Do not automatically sell because volatility has risen. Mechanical deleveraging can temporarily disconnect prices from underlying business fundamentals.
2. Rebalance gradually. Use two to four tranches rather than committing all available cash after the first down day.
3. Prioritise balance-sheet quality. Focus on companies with positive free cash flow, manageable refinancing requirements and limited dependence on capital markets.

If you are trading the move

Nomura’s Charlie McElligott highlights how predictable mechanical selling from leveraged ETFs, volatility-control funds and options dealers can create opportunities for traders to anticipate late-session flows rather than simply react to them. However, as more traders front-run these moves, the familiar pattern of a 2–3 p.m. New York low followed by a rebound becomes less reliable.

The risk is reflexivity: if everyone positions for the same late-day recovery, the market becomes particularly vulnerable when that rebound fails to materialise, potentially accelerating the sell-off instead.

Use smaller positions while volatility is elevated. If normal portfolio volatility doubles, cutting position sizes approximately in half is a simple way to keep monetary risk broadly stable.

For example: Normal position: £10,000. Normal daily movement: 2%. Approximate daily risk: £200

If daily movement rises to 4%, a £5,000 position produces roughly the same £200 daily risk.

What would suggest it is only a positioning event?

More reassuring signs would include:

• Corporate earnings expectations remain broadly stable.
• Credit spreads widen only modestly.
• Banks and funding markets continue operating normally.
• Government bonds regain their defensive role.
• The sell-off is concentrated in previously crowded or highly valued shares.
• Markets recover once systematic selling is completed.

ETF tracking GS Hedge Fund VIP Index - 6 November 2026

Have a question about one of our articles or a request? Email londoninvestmentdesk@saxomarkets.com.

References

Barclays Private Bank (2026) ‘The growing influence of retail investors’, 2 February. Available at: Barclays Private Bank (Accessed: 10 November 2026).

Bloomberg (2026a) ‘Anatomy of a selloff: sudden chain reaction rattles Wall Street’, 6 November. Available at: Bloomberg (Accessed: 10 November 2026).

Bloomberg (2026b) ‘Multistrat giants crowd into same trades, raising odds of a rout’, 2 November. Available at: Bloomberg (Accessed: 10 November 2026).

Cboe Global Markets (2026) ‘Historical market volume’. Available at: Cboe Global Markets (Accessed: 11 November 2026).

Global Market Observer (2026) ‘Post on X’. Available at: X (Accessed: 10 November 2026).

Goldman Sachs Asset Management (2026) ‘Goldman Sachs Hedge Industry VIP ETF’. Available at: Goldman Sachs Asset Management (Accessed: 10 November 2026).

The Dark Side of the Boom (2026) ‘The $100 billion trap: Nomura warns’. Available at: The Dark Side of the Boom (Accessed: 10 November 2026).

Yahoo Finance (2026) ‘Goldman data shows hedge funds’. Available at: Yahoo Finance (Accessed: 10 November 2026).