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
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