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That's not quite the argument. The argument is that those who want to sell or buy a specific stock can do so, immediately, at the correct price with minimal tra
by mseebach 11y ago
That's not quite the argument. The argument is that those who want to sell or buy a specific stock can do so, immediately, at the correct price with minimal transaction cost without worrying about identifying a counterpart etc. -- hence, market-making.
In a world where everybody is invested in the index, and no-one is buying individual stocks, there is no market to make.
- kasey_junk 11y agoThat's not quite true. Theoretically there would still be a demand curve, that is some people want more or less of the big index at any particular time. That means that you could make a market bridging the demand gap. But, it probably would be very risky and thus very expensive. I'd guess the "big index" world would be very illiquid.