The time scale is at least a thousand times faster than necessary for your retirement savings to be safe.
The problem of investment companies selling stupidly at 3am solves itself as they either learn or go bankrupt. And the counterparties making money off those dumb moves don't need to be 'connected'.
Any overnight mispricing is going to become an arbitrage opportunity for market makers, hedge funds, and HFT firms...whom will then compete with each other to mine that arbitrage opportunity until profits go to zero, solving the market inefficiency and mispricing problem over time (and by over time, I mean like probably the first few nights and then it stops being an issue forever).
In other words, a liquidity-based mispricing that happens consistently every night is going to quickly stop being mispriced since its so predictable.
The other way to think of it is that these parties are essentially middle men who make a cut of the difference whenever someone buys/sells far from market price.
Basically if you mis price something they screw you rather than the counter party who would be interested in taking the other side at market.
I think this is stupid and does not add value, but I don't think it's harmful. It's like the stocks equivalent of a junk flipper.
Yes, when you correct a mispricing in markets that is a valuable service and you tend to get paid in proportion to the mispricing you correct (this is why markets work so well, they provide dynamic incentives in a decentralized way).
In case you aren't aware, a world outside the US exists on different time zones and also invests in US capital markets.
Having 24/7 trading a massive value-add for the entire world who also invests in US companies, which benefits US companies tremendously given they will continue sucking up the world's capital.
This is yet another reason why global companies will continue going public in US markets instead of their own. Meanwhile Europe will continue struggling to form a capital markets union over the next 50 years while they slowly translate legal documents back and forth to each other in 42 languages, growing the fine dining economy of Brussels more than their domestic economies.
If you're not trading overnight and there's a flash crash that corrects itself overnight... it's the people who are trading overnight taking money from each other.
Most Americans who invest money don't trade at all. They pay some guy at a bank to do it, and the guy at the bank is exactly the kind of guy who is trading at 3am.
Most people are in simple retirement year funds which have a set algorithm which decides by simply rebalancing to follow an index and appropriately mitigating risk by shifting some assets towards bonds.
There is no one trading on a whimsy. The mutual fund founding documents specify an exact time of day (or times) at which the fund gets rebalanced and it simply follows the algorithm..
The price shocks discussed here will not affect that
Most of the time things will work as they are supposed to and arbitrage will work as a damper. Every once in a while you'll get a self-reinforcing loop and then it will work as an a run-away amplifier.
24/7 trading will definitely burn a lot of extra energy in datacenters, make some speculators a little richer, and make a LOT of retail investors nervous…
But what actual real-world problem will it solve?
I for one am skeptical that more liquidity is always good. I think that having achieved $0.01 spreads, we're well-past the point of diminishing returns with high-frequency trading.
That wouldn't be enough liquidity, and also wouldn't solve the problem if the auction happened at a specific time. Day traders would all put in their bid at the last possible moment.
What solves the day trading problem is doing chunked actions at random small intervals (like between 2-7 seconds). Then you can't put your bid in at the last moment because you won't know when it is. So your best bet is to put in your bid when you've chosen a price, knowing that it will resolve within seven seconds or less.
I do see your point regarding timing, but I don't see why daily isn't enough liquidity when, for decades, funds from trades have taken multiple days to clear.
The very existence of holiday weekends shows that it's actually totally fine if you go 72 hours without any trades resolving.
There are whole books on this, but the short summary is that there are infinite times when information can change that would affect the value of a company. Anything less than infinite trading is a compromise where the price is no longer reflective of the value. The bigger the gap in the time, the bigger the gap between price and value.
For example, if you could only trade once a day, let's say a company announces midday that some huge customer has just left their platform. Their price should drop, but without trading it can't. So now everyone knows that their value is lower, but can't do anything about it. So people who own that stock will hold their money and not make other trades, because they know they are going to lose a bunch when trading happens again.
> The very existence of holiday weekends shows that it's actually totally fine if you go 72 hours without any trades resolving.
Trading never stops. There is an entire secondary market that has after hours/weekend trading, and a tertiary private market when that one isn't open. It's just you (and all the other retail traders) who can't trade.
Which if anything proves the opposite of your point. Liquidity is so important that wealthy people set up an entire system to keep trading just so they can still have it.
> But what actual real-world problem will it solve?
I know most Americans don't travel, but are you aware that timezones exist and there's an entire world outside the US that also invests in US companies?
Why do you think global companies want to list in US capital markets instead of their own? Being the world's most desirable capital markets is a massive boon for the US economy and 24/7 trading will only accelerate this trend.
> I know most Americans don't travel, but are you aware that timezones exist and there's an entire world outside the US that also invests in US companies?
Not only am I dimly aware of the existence of these not-the-US places, but I actually live in not-the-US.
No, they stop hunt their way to depressed prices where they then buy anticipating the recovery while you closed out your “safe” retirement positions at -15%.
You use a trailing stop loss. You get closed out 15% down from the top, not 15% down from purchase. The alternative in a 24 hour market is worse — the news of a real event hits and by the time you wake up and respond you’re down 50% or more and the stock isn’t coming back.
This policy change is to hunt profit from a safety mechanism used by retail traders.
It is something that should yield a lot of profit for 24 hour trading systems during a downturn.
In the past, stupid situations on Wall Street have not resolved that way; they've resulted in disasters that cause economic harm to many people in the country and the world. Though sometimes people on Wall Street do make money from those situations.
But on what time scale? Before a few connected entities make a profit or after?
The time scale is at least a thousand times faster than necessary for your retirement savings to be safe.
The problem of investment companies selling stupidly at 3am solves itself as they either learn or go bankrupt. And the counterparties making money off those dumb moves don't need to be 'connected'.
Not if I retire 300 times per minute
Milliseconds?
Any overnight mispricing is going to become an arbitrage opportunity for market makers, hedge funds, and HFT firms...whom will then compete with each other to mine that arbitrage opportunity until profits go to zero, solving the market inefficiency and mispricing problem over time (and by over time, I mean like probably the first few nights and then it stops being an issue forever).
In other words, a liquidity-based mispricing that happens consistently every night is going to quickly stop being mispriced since its so predictable.
Extracting value from the market as they do it and leaving everyone operating at normal time/capital scales with less. Or isn’t that what you meant?
That's one way to think of it.
The other way to think of it is that these parties are essentially middle men who make a cut of the difference whenever someone buys/sells far from market price.
Basically if you mis price something they screw you rather than the counter party who would be interested in taking the other side at market.
I think this is stupid and does not add value, but I don't think it's harmful. It's like the stocks equivalent of a junk flipper.
Yes, when you correct a mispricing in markets that is a valuable service and you tend to get paid in proportion to the mispricing you correct (this is why markets work so well, they provide dynamic incentives in a decentralized way).
In case you aren't aware, a world outside the US exists on different time zones and also invests in US capital markets.
Having 24/7 trading a massive value-add for the entire world who also invests in US companies, which benefits US companies tremendously given they will continue sucking up the world's capital.
This is yet another reason why global companies will continue going public in US markets instead of their own. Meanwhile Europe will continue struggling to form a capital markets union over the next 50 years while they slowly translate legal documents back and forth to each other in 42 languages, growing the fine dining economy of Brussels more than their domestic economies.
If you're not trading overnight and there's a flash crash that corrects itself overnight... it's the people who are trading overnight taking money from each other.
It’s easy to forget that “overnight” trading is the middle of someone’s day, somewhere. Generally Asia.
Most Americans who invest money don't trade at all. They pay some guy at a bank to do it, and the guy at the bank is exactly the kind of guy who is trading at 3am.
Financial illiteracy will be the end of democracy
There's nothing wrong with not retail trading. In fact, most people shouldn't be doing it.
That's the point.
You think some guy at a bank is trading for you.
In a hedge fund sure
Most people are in simple retirement year funds which have a set algorithm which decides by simply rebalancing to follow an index and appropriately mitigating risk by shifting some assets towards bonds.
There is no one trading on a whimsy. The mutual fund founding documents specify an exact time of day (or times) at which the fund gets rebalanced and it simply follows the algorithm..
The price shocks discussed here will not affect that
You missed the point of that comment. Nobody at your bank is trading for you or themselves at 3am.
But that doesn’t matter to your retirement. Don’t sell your retirement at 3am and the liquidity at 3am isn’t your problem.
Do you actively trade on a 401k or other savings instrument or do you leave it up to the bank/brokerage?
Makes no difference unless you are a daytrader
Most of the time things will work as they are supposed to and arbitrage will work as a damper. Every once in a while you'll get a self-reinforcing loop and then it will work as an a run-away amplifier.
I'm extremely skeptical about this.
24/7 trading will definitely burn a lot of extra energy in datacenters, make some speculators a little richer, and make a LOT of retail investors nervous…
But what actual real-world problem will it solve?
I for one am skeptical that more liquidity is always good. I think that having achieved $0.01 spreads, we're well-past the point of diminishing returns with high-frequency trading.
Right? Why do we even need all-day trading?
I have seen a once-daily auction proposed, which seems like a sensible approach to me.
That wouldn't be enough liquidity, and also wouldn't solve the problem if the auction happened at a specific time. Day traders would all put in their bid at the last possible moment.
What solves the day trading problem is doing chunked actions at random small intervals (like between 2-7 seconds). Then you can't put your bid in at the last moment because you won't know when it is. So your best bet is to put in your bid when you've chosen a price, knowing that it will resolve within seven seconds or less.
I do see your point regarding timing, but I don't see why daily isn't enough liquidity when, for decades, funds from trades have taken multiple days to clear.
The very existence of holiday weekends shows that it's actually totally fine if you go 72 hours without any trades resolving.
There are whole books on this, but the short summary is that there are infinite times when information can change that would affect the value of a company. Anything less than infinite trading is a compromise where the price is no longer reflective of the value. The bigger the gap in the time, the bigger the gap between price and value.
For example, if you could only trade once a day, let's say a company announces midday that some huge customer has just left their platform. Their price should drop, but without trading it can't. So now everyone knows that their value is lower, but can't do anything about it. So people who own that stock will hold their money and not make other trades, because they know they are going to lose a bunch when trading happens again.
> The very existence of holiday weekends shows that it's actually totally fine if you go 72 hours without any trades resolving.
Trading never stops. There is an entire secondary market that has after hours/weekend trading, and a tertiary private market when that one isn't open. It's just you (and all the other retail traders) who can't trade.
Which if anything proves the opposite of your point. Liquidity is so important that wealthy people set up an entire system to keep trading just so they can still have it.
> But what actual real-world problem will it solve?
I know most Americans don't travel, but are you aware that timezones exist and there's an entire world outside the US that also invests in US companies?
Why do you think global companies want to list in US capital markets instead of their own? Being the world's most desirable capital markets is a massive boon for the US economy and 24/7 trading will only accelerate this trend.
> I know most Americans don't travel, but are you aware that timezones exist and there's an entire world outside the US that also invests in US companies?
Not only am I dimly aware of the existence of these not-the-US places, but I actually live in not-the-US.
I believe I'm dimly aware of the concept of a timezone too, yeah. https://bugs.python.org/issue35829#msg385309
> Being the world's most desirable capital markets is a massive boon for the US economy and 24/7 trading will only accelerate this trend.
So, no downsides or diminishing returns to offering 24/7 trading?
>But what actual real-world problem will it solve?
Having US markets open during the rest of the world's business day.
Okay, what problem does that solve?
No, they stop hunt their way to depressed prices where they then buy anticipating the recovery while you closed out your “safe” retirement positions at -15%.
You don’t put stop losses on retirement positions. That’s an incredibly dumb thing to do for long term investors.
It’s literally a “sell low” policy.
You use a trailing stop loss. You get closed out 15% down from the top, not 15% down from purchase. The alternative in a 24 hour market is worse — the news of a real event hits and by the time you wake up and respond you’re down 50% or more and the stock isn’t coming back.
This policy change is to hunt profit from a safety mechanism used by retail traders.
It is something that should yield a lot of profit for 24 hour trading systems during a downturn.
>while you closed out your “safe” retirement positions at -15%
User error
It’s funny and also disadvantages everyone who can’t trade 24/7. Win/win?
Or the govt steps in and cancels trades like what happened in the flash crash.
In the past, stupid situations on Wall Street have not resolved that way; they've resulted in disasters that cause economic harm to many people in the country and the world. Though sometimes people on Wall Street do make money from those situations.
Of course they have... There have been multiple 'flash crashes' which corrected in seconds.
[dead]