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Traders question the value, but what about investors? It seems like a good idea in theory, at least—give the markets a little breathing room before trillions of
by geerlingguy 7y ago
Traders question the value, but what about investors? It seems like a good idea in theory, at least—give the markets a little breathing room before trillions of dollars vanish into the ether in minutes.
I'd rather there be circuit breakers than risk the markets losing 50% in one day, which seems possible in a panic selloff.
- devit 7y agoNothing is lost or vanishes, it's just a change in the ratio at which people are willing to exchange two assets.
- altcognito 7y agoNothing except your ability to procure new investment capital, borrow to pay wages which may or may not include premiums for health care.
- bluGill 7y agoNone of that should be tied to the stock market. That has been advice from all the experts for ages. Even the strongest stock advocates have said the stock market it for long term savings.
- JumpCrisscross 7y ago> None of that should be tied to the stock market Crashing equities inhibit capital formation. That happens in both the public and private markets. That, in turn, puts pressure on credit markets. The firms that survive will cut back on spending. The ones that are too leveraged will go under. Both have tangible effects. In this case, there is the uncertainty around demand destruction. Markets falling more than expected communicate a belief that more demand will be destroyed in the coming weeks than was expected. That, in turn will prompt corporate planning to reduce outlays. Not only is cash from financing expected to drop, but cash from operations to do so more than expected.
- CrazyStat 7y agoIf you are a publicly traded company it's impossible for all those things to not be tied to the stock market.
- deleted 7y ago[deleted]
- Nasrudith 7y agoIt is a bit pedantic but the truth is that you never really had it but nobody noticed before. If you invest in a ponzi scheme and your nominal value was $1M but you only put in $10K you didn't lose $1M you lost $10K plus opportunity costs.
- _jal 7y agoI love how some market-watchers suddenly retreat into abstract economic pronouncements in the face of meltdowns. There was a fair bit of this in 2008 and 1989, too. Nobody is lost or vanishing due to Covid-19, it's just a change in their respiratory rate.
- JumpCrisscross 7y ago> It seems like a good idea in theory What theory? Intraday pauses are meant to the market time to digest new information. A trading halt at the Monday open requires a different justification. The counterargument to these halts, by the way, is that they draw attention to the price drop. That may prompting more selling than would have otherwise occurred. (For example, as people rush to get their orders in before the next halt.)
- yxhuvud 7y agoIf you read the actual article, what they speak about is not drops that happen in the middle of the day or something, but drops that were very expected as the futures-market for these stocks has dropped before even opened. That is, closes due to drops that happen during opening minutes isn't helpful for anyone.
- whatshisface 7y agoIf the perceived value of the stock has fallen overnight and the futures market reflects that, won't the price instantly and automatically update to reflect that during the opening auction?
- vzidex 7y ago> won't the price instantly and automatically update to reflect that during the opening auction? Yes, this is what is referred to as a "gap down" - it produces what is almost a discontinuity in the graph of the price. This is also why the opening price for an asset is often different than its closing price from the previous day.
- gbear605 7y agoIt does, which is what happened today, and once (or twice? I can’t remember now, which is a bad sign...) in the last couple of weeks. The circuit breaker still breaks, it just breaks with the price down 8% or whatever.
- Bedon292 7y agoI think so, yes. But I imagine at least part of what happens is people have stop losses in place, which trigger instantly at the opening bell due to the new lower price, plummeting the prices more. Since they would not trigger after hours. But I am actually curious what is happening, where is most of this volume coming from? I can't imagine people had chances to make any decisions in the 1 second between opening and halt. Which I think is the purpose of the pauses, right? Giving humans a chance to make decisions instead of the algorithms?
- 7y ago
- chaorace 7y agoTraders would be correct, in a rational market with perfect information. I'm not always a big fan of behavioral economics, but I think the relationship here is pretty intuitive. FUD is real and it causes (is?) volatility. We can't get rid of that, but we can at least smooth it out a bit.
- londons_explore 7y agoThere are other ways to smooth volatility. For example, you could agree to buy or sell at the average price over the next 30 days.
- XorNot 7y agoSomeone has to create this as a derivative product though, which has to somehow be normalized against the real assets which are traded.
- londons_explore 7y agoNo need. If you want to sell 100 shares at the average price over the next 33 days, just sell 3 per day... You don't need anything fancy.
- XorNot 7y agoYes you do, because if the market is volatile then depending when you sell the "average" you see can potentially vary widely from what the historical average actually looks like. Sell 3 shares in the morning and hey you're down 7%, sell at mid-day and you might be only down 4%. "Sell at the average over 30 days" changes a lot based on implementation. So now again, you're talking about a derivative product with specific parameters...which in turn, will actually be bid against: if I, another trader, know you're going to reliably put shares up for sale at a certain time each day, then my inclination is to start anticipating sales - and oh look you're now functionally a futures market.
- 7y ago