I think you’re totally right that to the extent that the stock market is a zero-sum game retail traders will lose almost every time, since the big players on the other end will always have more information and power to leverage that information than retail.
I think a lot of the relevance of this comment depends on your view of stock-market-as-casino vs stock-market-as-generator-of-wealth-at-several-steps-removed. I take the view that it’s mostly the latter; widget maker IPOs, accepts money from big institutional IPO investor and buys capital with it in exchange for proceeds, IPO investor (effectively after several intermediate trades) sells that share of proceeds-generated-from-capital to retail trader. The capital is still doing stuff for people! It’s just exactly what it’s doing is totally opaque to almost everyone.
I don’t know enough about how equities trade during earnings, but I do know a little about how some other products trade during data releases and while people are speaking.
In general, the vast, vast, vast majority of liquidity is withdrawn from the market before the release. There will be a few stale orders people have left by accident + a few orders left in at levels deemed ridiculously unlikely. As soon as the data is released, the fastest players will general send quotes making a (fairly wide market) around their estimate of the fair price. Over time (and here we’re still talking very fast) more players will come in, firming up that new market.
The absolute level of money which is being made during this period is relatively small. It’s not like the first person to see the report gets to trade at the old price, they get to trade with any stale orders—the market just reprices with very little trading volume.
All of the money-making value was redeemed before people like you and me even had a chance to trade. Right?
Correct, you absolutely did not have the chance to be involved in this trade unless you work at one of a handful of firms which have spent 9 figure sums on doing this really, really well.
One note that I wanted to add as we begin the discussion: in the hour it took me to write this post yesterday afternoon, Facebook stock had the largest one-day value drop in the market’s history.
This is what appears to have happened:
Facebook announced that it was losing users
Bots (it’s bots, right?) interpreted this news as “Facebook is going to lose value, better sell my shares while they are still high value”
Bots (right?) sold shares (to whom?)
Share value declined
All of the money-making value was redeemed before people like you and me even had a chance to trade. Right?
I think you’re totally right that to the extent that the stock market is a zero-sum game retail traders will lose almost every time, since the big players on the other end will always have more information and power to leverage that information than retail.
I think a lot of the relevance of this comment depends on your view of stock-market-as-casino vs stock-market-as-generator-of-wealth-at-several-steps-removed. I take the view that it’s mostly the latter; widget maker IPOs, accepts money from big institutional IPO investor and buys capital with it in exchange for proceeds, IPO investor (effectively after several intermediate trades) sells that share of proceeds-generated-from-capital to retail trader. The capital is still doing stuff for people! It’s just exactly what it’s doing is totally opaque to almost everyone.
agreed agreed agreed
but hey guess what the market rebounded today so yay for that?
I don’t know enough about how equities trade during earnings, but I do know a little about how some other products trade during data releases and while people are speaking.
In general, the vast, vast, vast majority of liquidity is withdrawn from the market before the release. There will be a few stale orders people have left by accident + a few orders left in at levels deemed ridiculously unlikely. As soon as the data is released, the fastest players will general send quotes making a (fairly wide market) around their estimate of the fair price. Over time (and here we’re still talking very fast) more players will come in, firming up that new market.
The absolute level of money which is being made during this period is relatively small. It’s not like the first person to see the report gets to trade at the old price, they get to trade with any stale orders—the market just reprices with very little trading volume.
Correct, you absolutely did not have the chance to be involved in this trade unless you work at one of a handful of firms which have spent 9 figure sums on doing this really, really well.