5 ms·

Instead of circuit breakers, why not: 1) Forbid any trading of stock futures. To me, reading about stock futures reaching circuit breakers would invoke panic a

Instead of circuit breakers, why not: 1) Forbid any trading of stock futures. To me, reading about stock futures reaching circuit breakers would invoke panic and the need to sell as soon as the market opens. Let the market open at 9:30 EST, to whatever price the market feels is appropriate at that time. Do not give them a clue as to what it can be. Let the market decide for itself. 2) Forbid short selling. I feel most of the selling is done by long-term holders, but short selling does excacerbate the situation. I'm in favor of forbidding short selling forever, let alone in a crisis, as it's an artificial technicality of the market. You can't short sell houses, or your possessions, right? So why can we short sell stocks (if you want to hedge, go buy put options)? I sure as heck didn't give anyone the right to borrow my stocks and sell it. It's mine - I own it.

whatok 7y ago
You absolutely gave the right on borrow if you're among 99% of individual investors. There's a reason why your fees and commissions are low.
- AznHisoka 7y ago
  Thanks, I honestly did not know that. I wish there was a broker that would just charge me a higher fee/commission and not lend my shares to anyone.
Bedon292 7y ago
Not sure with all brokers, but I have seen some agreements where you do agree to let someone borrow your stocks (somewhere in the fine print), for interest, just by using the platform. I believe with Interactive Brokers at least it was an explicit opt in process though. I would be interested in a break down of trading platforms and what their stance on that is though. Let people make better informed decisions about it.
dtwest 7y ago
1) Why? Futures do not prevent the market from "deciding for itself". Global equity markets don't just trade on New York time. Getting rid of futures would not fix the problem you are trying to solve, while creating many new problems. 2) If short selling actually did exacerbate the situation, wouldn't that create a buying opportunity for other market participants? In reality, short selling does not systematically force markets to price things incorrectly.
- AznHisoka 7y ago
  1) I'm not sure about that. I think any pre-market activity influences the price it trades at during the day. For example, if a stock goes up 10% up pre-market because it beats earnings, it usually stays at that price level during the day. Just because people see the price up in pre-market. Same if it goes down. It acts as some sort of marker. It would be interesting to see how prices would be impacted if there were absolutely zero pre-market activity. For instance, if $SPY didn't drop 10% pre-market, and nobody put in any bids/sells yet, would $SPY open at 10% down? If it goes down even more, then so be it. At least, that's what the market wants. Not on an arbitrary marker price they see in pre-market and is stuck in their mind. 2) I think short selling helps misprice stocks in both directions. It creates artificial price increases simply b/c of shorts covering as well. Let stocks go up because more people want to buy it than they want to sell. And let stocks go down because more people want to sell than they want to buy. That's what a market is for other assets - whether it's ebay, amazon, groceries, etc. Don't let other technicalities affect the price.
  - dtwest 7y ago
    "For example, if a stock goes up 10% up pre-market because it beats earnings, it usually stays at that price level during the day. Just because people see the price up in pre-market." 1) No, it is not just because people see the price pre-market. It is because it beat earnings. Futures are not an arbitrary marker price. 2) There is so much arbing going on that I don't agree with you.
    - AznHisoka 7y ago
      Fair enough, I respectfully disagree, but you raise some good points.
seanhunter 7y ago
The social function of markets in a capitalist system isn't to make prices go up indefinitely, it's to establish "true" prices for capital and various types of goods. This is "true" in the sense that the price reflects the consensus of all the opinions available (good and bad) where people are prepared to put their money where their mouth is. In both of the cases you mentioned, futures and short selling, if they are prohibited, what would happen is the resulting price would only reflect the opinion of people who were positive and the market would not reflect all the available opinion, and therefore would be less value in determining the clearing price of capital.
- AznHisoka 7y ago
  In a real estate market, there is no futures (or even any price ticker), nor short selling. Yet it goes up based on higher demand, and it goes down based on lower demand. If you want to put your money where your mouth is, there are options for that. But if the stock market really wants to be true market, it should act like all the other marketplaces we have in the world.
  - seanhunter 7y ago
    There are most certainly real estate futures traded on CME. https://www.cmegroup.com/trading/real-estate.html https://www.cmegroup.com/trading/real-estate.html Short selling is possible via inverse REITs and other vehicles. I'm not really sure what you mean by "all other marketplaces". Lots of marketplaces allow shorting. For example (almost) all commodity markets trade via futures and that means shorting is possible by definition. Grain futures have been traded since ancient Babylon to allow farmers and consumers of grain (eg brewers and bakers) to hedge against adverse price movement between planting and the harvest. When I say "almost" all commods trade via futures, for weird historical reasons[1] futures trading in onions is not allowed and so people research onion trading as an example of the effects on a market of disallowing futures trading. The current research suggests that disallowing futures and options trading increases volatility, leading to more pronounced boom and bust as the market struggles to digest information. [1] https://www.good.is/articles/the-great-chicago-onion-ring-why-selling-onion-futures-is-against-federal-law https://www.good.is/articles/the-great-chicago-onion-ring-wh...

whatok 7y ago

You absolutely gave the right on borrow if you're among 99% of individual investors. There's a reason why your fees and commissions are low.

AznHisoka 7y ago
Thanks, I honestly did not know that. I wish there was a broker that would just charge me a higher fee/commission and not lend my shares to anyone.

Bedon292 7y ago

Not sure with all brokers, but I have seen some agreements where you do agree to let someone borrow your stocks (somewhere in the fine print), for interest, just by using the platform. I believe with Interactive Brokers at least it was an explicit opt in process though. I would be interested in a break down of trading platforms and what their stance on that is though. Let people make better informed decisions about it.

dtwest 7y ago

1) Why? Futures do not prevent the market from "deciding for itself". Global equity markets don't just trade on New York time. Getting rid of futures would not fix the problem you are trying to solve, while creating many new problems. 2) If short selling actually did exacerbate the situation, wouldn't that create a buying opportunity for other market participants? In reality, short selling does not systematically force markets to price things incorrectly.

AznHisoka 7y ago
1) I'm not sure about that. I think any pre-market activity influences the price it trades at during the day. For example, if a stock goes up 10% up pre-market because it beats earnings, it usually stays at that price level during the day. Just because people see the price up in pre-market. Same if it goes down. It acts as some sort of marker. It would be interesting to see how prices would be impacted if there were absolutely zero pre-market activity. For instance, if $SPY didn't drop 10% pre-market, and nobody put in any bids/sells yet, would $SPY open at 10% down? If it goes down even more, then so be it. At least, that's what the market wants. Not on an arbitrary marker price they see in pre-market and is stuck in their mind. 2) I think short selling helps misprice stocks in both directions. It creates artificial price increases simply b/c of shorts covering as well. Let stocks go up because more people want to buy it than they want to sell. And let stocks go down because more people want to sell than they want to buy. That's what a market is for other assets - whether it's ebay, amazon, groceries, etc. Don't let other technicalities affect the price.
- dtwest 7y ago
  "For example, if a stock goes up 10% up pre-market because it beats earnings, it usually stays at that price level during the day. Just because people see the price up in pre-market." 1) No, it is not just because people see the price pre-market. It is because it beat earnings. Futures are not an arbitrary marker price. 2) There is so much arbing going on that I don't agree with you.
  - AznHisoka 7y ago
    Fair enough, I respectfully disagree, but you raise some good points.

seanhunter 7y ago

The social function of markets in a capitalist system isn't to make prices go up indefinitely, it's to establish "true" prices for capital and various types of goods. This is "true" in the sense that the price reflects the consensus of all the opinions available (good and bad) where people are prepared to put their money where their mouth is. In both of the cases you mentioned, futures and short selling, if they are prohibited, what would happen is the resulting price would only reflect the opinion of people who were positive and the market would not reflect all the available opinion, and therefore would be less value in determining the clearing price of capital.

AznHisoka 7y ago
In a real estate market, there is no futures (or even any price ticker), nor short selling. Yet it goes up based on higher demand, and it goes down based on lower demand. If you want to put your money where your mouth is, there are options for that. But if the stock market really wants to be true market, it should act like all the other marketplaces we have in the world.
- seanhunter 7y ago
  There are most certainly real estate futures traded on CME. https://www.cmegroup.com/trading/real-estate.html https://www.cmegroup.com/trading/real-estate.html Short selling is possible via inverse REITs and other vehicles. I'm not really sure what you mean by "all other marketplaces". Lots of marketplaces allow shorting. For example (almost) all commodity markets trade via futures and that means shorting is possible by definition. Grain futures have been traded since ancient Babylon to allow farmers and consumers of grain (eg brewers and bakers) to hedge against adverse price movement between planting and the harvest. When I say "almost" all commods trade via futures, for weird historical reasons[1] futures trading in onions is not allowed and so people research onion trading as an example of the effects on a market of disallowing futures trading. The current research suggests that disallowing futures and options trading increases volatility, leading to more pronounced boom and bust as the market struggles to digest information. [1] https://www.good.is/articles/the-great-chicago-onion-ring-why-selling-onion-futures-is-against-federal-law https://www.good.is/articles/the-great-chicago-onion-ring-wh...