Since the article is not very informative, and it's a real rabbit hole to try to track this stuff down across all the linked articles etc. and as I don't even really care about stocks and the market, I am only left with one question which I did not find answered anywhere yet - what exactly does day and night mean in the context of the whole world trading?
Each stock is listed at some exchange. There are companies that have stock listed at several exchanges, but the stock tickers have a postfix that identifies the exchange they are listed on so you can still distinguish them. And for such companies, one of those exchanges is the 'primary exchange' of the stock. Normally the vast majority of trades of a stock happen on its primary exchange.
So, since each stock has a primary exchange, the 'day' and 'night' refer to the time zone of that particular exchange.
Simply put, day means if you bought on the market open and sold at the close. Night means if you bought on the close and sold on the open.
The implication seems to be stocks jump at the open then trail off during the day. Thing is most of this is only obvious in retrospect and by the time you realize it the opportunity is gone because it’s now widely known.
As someone who doesn't know much about stocks and trading - is it normal to keep stocks for only <12h? All comments talk about morning -> evening or evening -> morning, what about morning -> morning, or even longer timespans?
Or is this the difference between trading and investing?
You can keep stocks only for milliseconds if you wish... (see e.g. https://en.wikipedia.org/wiki/High-frequency_trading). And for the less extreme version there's day trading (https://en.wikipedia.org/wiki/Day_trading) where you sell all your positions before the market closes (basically you try to speculate on intra-day changes of the stocks, so you keep them from minutes to hours).
> Or is this the difference between trading and investing?
Probably, or rather between purely speculating and investing?
I don't think trading is the same as speculating. To me, speculating is making big directional bets, eg "I think oil is underpriced right now, so i am going to buy loads of oil futures, then hope that in three months i can sell them at a much higher price". Whereas trading is usually much shorter-term and less directional, eg "I think French government bonds are overpriced relative to German government bonds right now, so i am going to get short French bond futures, buy an equivalent amount of German cash bonds, then hope that in a couple of days i can unwind that for a profit". And investing is "people like to drink Coca-Cola, so i will buy shares in the Coca-Cola company".
But i don't think there are hard and fast definitions.
Yeah, some people use "trading" and "speculating" in the exactly opposite way than you do. Some equate speculating and trading entirely: a trader is someone who buys something not for personal use but for further resale, and of course they hope to sell at a higher price, duh.
I believe when people talk about trading and investing the main difference is the time horizon.
See Swing Trading, Day Trading etc. for shorter-term time-horizons. Keeping stocks only intra-day would be Day Trading (generally).
There are lots of people on the internet who say they can 'teach' you day-trading. Don't do it unless you have a very high risk tolerance, i.e. are willing to lose it all and walk away. Even then there's probably better things to do with your money.
> There are lots of people on the internet who say they can 'teach' you day-trading. Don't do it unless you have a very high risk tolerance,
Yeah I know, watched a ton of videos documenting the shady things these finance-gurus have done over the years. For a couple of months I was involved in a signal-trading group (I knew them personally), but I never had a good feeling about it and pulled my money without loosing much of it.
After playing around with crypto I've come to the conclusion that a savings and retirements account is probably the better solution for me, even though the interest is laughable. At least the money is safe as long as the global financial system doesn't totally collapse.
In the end I don't care enough about having more money to venture into investing etc., and I'm too scared of being conned by someone.
No, it’s definitely not normal although I don’t have figures on what the average hold time is for any given issue. Since a lot of stock is purchased as automatic 401k contributions a lot of stock is held for many years. I believe this article is just using this to illustrate an unusual price pattern that emerged for some time where stocks opened higher than the close for a significant number of days over this timeframe.
It’s just parasitism on top of the legitimate activities of the market (capital allocation).
People who benefit from it (market administrators, traders) like to pretend it increases the liquidity of the market and that it’s a good thing. How you appreciate this argument generally directly depends of how much you stand to gain from it being accepted.
Yeah, yeah, I know the drill lower fees, faster price discovery, better liquidity. You will have a hard time convincing me any of these benefits are worth tolerating the damage speculations wreak like clockwork every ten years or so but I know I am on the losing side of this battle.
Intraday means you buy some stock - in some exchange - in the morning at the open price in the opening auction and sell the stock in the evening at the close price in the closing auction.
Overnight means you take the other side: buy at the close and sell at the open. (This is a bit more complex conceptually as you would never settle the trades and that may be problematic regarding dividends and other corporate actions.)
All the trades would settle, but you would need extra cash or a margin account. In a cash account, there's rules about selling stocks before the purchase funds have settled.
The move to T+2 settlement last decade reduces the requirements, and T+1 later this decade would reduce them further.
Dividends and corporate actions aren't a big deal. Those all have announcement dates and record dates. If you hold the shares at the close of market on the record date, you will get the dividend or other proceeds. So if you always manage to buy at close, you will always get those benefits. The only complication would be if you want to oppose a merger and have standing to sue; or I guess if you were an injured party in any other shareholder lawsuit. Lots of tax paperwork too.
Could you please explain this complexity? ELI5 even?
You never settle the trades?
Dividends etc?
Hmm maybe I am 5...
Edit: ok yep so I guess what if they repeated the analysis leaving some time around open/close for chance of trades to settle, would the effect disappear or would this chance beef the key factor for the reported gain?
Settlement is when you actually own the stock you bought and the seller actually gets your money. That happens a couple of days after the trade. In the meantime it’s just “as if” but not quite and that has practical consequences. For example you can’t take your money out of the brokerage account until it’s really there.
> I am only left with one question which I did not find answered anywhere yet - what exactly does day and night mean in the context of the whole world trading?
While we're at it, I have a related question: why do the exchanges even "open" and "close"? Surely in our globalized digital economy, it's not just "day" and "night" that are meaningless, but the very concept of "opening hours" itself.
Historically, it's because exchanges were real places that people went to, and it would be expensive and pointless to run them all night.
These days, there is a trend towards opening hours getting longer (eg [1]).
But there is still value to limited hours. Off the top of my head:
1. Liquidity gets concentrated. If there is a fixed amount of end-user demand (inflows into pension funds, oil production to hedge), then shorter hours means sort of 'denser' trading, which in turn means more quantity on the books, tighter prices, and better efficiency.
2. Trading is still done under human direction, or at least under human supervision, so shorter hours are less demanding on staffing. It's possible to run a productive soybean trading desk with two people at the moment. You'd need six people if trading was round the clock, and those people aren't cheap. Or else desks don't trade the whole day, and they miss out on opportunities, and other participants get less competition, and so worse efficiency.
3. Closing the market gives participants time to do various kinds of admin related to trading. Options markets close earlier than their corresponding futures markets, so that options market makers can get their position cleanly hedged. Bond markets close before repo desk traders go to the pub, so that bond trades can get financed.
If anyone is wondering, this is not a joke. Some of the trading systems I've worked on were designed to be restarted every night. The memory didn't "leak", but was designed this way - preallocate all the memory you could need, and its "freed" when you restart at night.
Because the memory fills up. You pre-allocate a million orders, and send 800k orders a day, leaving only 200k free slots. You're going to run out mid day tomorrow if you don't restart.
Ah, OK. But I would characterize this as an internal allocator that never deallocates. You might as well replace `malloc` and `free` to do the same, and just allocate within the program normally.
Just because you "preallocate" it doesn't mean that you don't implement a poor man's allocator inside the preallocated buffer.
That just sounds like a memory leak with more words. Is the memory reclaimed/reclaimable? No? Ok then it leaked. If the system were able to reclaim the memory from the order, you wouldn't need to restart it. The memory arena strategy doesnt change that.
It's still a fine strategy. One "formal" name for it I've heard is "null garbage collector". It may feel dirty, but it's pragmatic: if the program runs in cycles with well-defined starts and ends, restarting it reclaims all memory and brings the program to a well-known state.
I buy all the groceries I need for a week. That's realistically achievable (cost, cargo capacity of my vehicle, storage capacity at home, etc.).
I buy all the groceries I need from now until the end of time. That's not realistically achievable, from any perspective.
Allocating all the memory you need for a day is realistically achievable. Allocating all the memory you need until the end of time is not realistically achievable.
The grocery analogy doesn't work. When you're "done" with a particular "grocery", it's gone. It doesn't exist anymore. When you're done using a block of memory, you can use it again and again and again. Assuming you remembered to free it. Groceries work more like write-once memory.
It's a "leak" only if it creates problems for you, such as slowdown or risk of running out of memory. In this case, there are no such problems - memory use and execution time are both bounded. The memory gets automatically reclaimed when the program restarts (that's the job of the OS, and if it fails at it, you can always reboot the machine).
It's a perfectly fine way of engineering a system.
There's also a variant of this that's been used on missiles - basically, you put enough RAM on the weapon to guarantee it'll hit its target or run out of fuel before running out of memory.
I once was tracking a white whale of a memory leak. Along the way I was able to optimize memory usage of the leaked objects. So I got to the point where I thought maybe the leak was caused by simultaneous read, update, and delete operations on a single key, but by then I'd improved memory usage such that weekly, rather than nightly restarts were needed. The futures markets at the time were 24/7 but with a maintenance period on the weekends, so my boss just told me to leave it and let the restarts garbage collect.
The real pros generalized this concept into so-called "supervision trees" - building your system as a hierarchy, where whenever a program misbehaves in any way, it gets restarted by a higher-level program, which itself will also be restarted if it can't get a handle on things, recursively to the top of hierarchy.
> You'd need six people if trading was round the clock, and those people aren't cheap.
That's not a good argument. If there were more openings for that kind of position, more people would apply, and average remunerations would get lower.
The real problem is that this would effectively distribute wealth (and access to wealth) more widely, and the ruling classes can't have that as a matter of principle.
Hiring six traders instead of two does not strike me as a form of wealth redistribution effective enough to warrant the attention of the all-powerful Illuminati, although i'll ask them next time i see them just in case.
It's not a hypothesis, it's how the mass-market works. Take computation: as demand rose and rose, prices fell and fell. And yes, the education and career systems have commonalities with manufacturing.
In computation, the supply rose much faster (faster chips, cloud computing) than demand until the advent of widespread ML. And I haven't noticed the price falling much in the last few years.
I don't know if it's the reason, but I understand that a lot of market-moving news is released after close so that participants have time to digest it and decide whether their positions still make sense. The next day's opening auction will deal with the increased volatility better (see the story about the NYSE "forgetting" to hold the opening auction and the resulting chaos)
Nobody just presses "start" on their trading algo and takes a nap the rest of the day. Even market makers, who have a simple and easily-automatable trading strategy, have a team of traders constantly tweaking the parameters to their algos.
I guess they could hire a second and third shift, but they also could have done that back when stocks were traded on paper and over the phone. The will just isn't there.
It's not an anachronism. Liquid markets behave verrry differently from illiquid markets.
In liquid markets, "AAPL is $141.23" makes sense. It means that you can expect to buy and sell almost as much AAPL as you want at very close to that price because there are loads of buyers and sellers near that price. You can pretend that AAPL stocks have a price like a lamp at home depot: "I would like 2 AAPL please" is a safe thing to say.
In illiquid markets, "AAPL is $141.23" does not make sense. "I would like 2 AAPL please" is not safe at all. There are bids and offers, but not necessarily a lot of them, and not necessarily near each other. If you were to place the "2 AAPL please" order (or something related like "$500 of AAPL please"), you might find that you have purchased 1 AAPL for $141.23 and 1 AAPL for $299.57 because there was a big gap in the order book. The price abstraction completely breaks down and you have to "haggle" with bids and offers directly.
"Ok," you might say, "liquidity is important, but surely we can just let the bots provide liquidity at night?" The problem is that markets are adversarial and bots can't really deal with "attacks" as well as humans (or at least the humans staking the money don't trust them to). There is all sorts of craziness that a market-making bot can't handle, and if you encourage people to rely exclusively on market-making bots then they can be taken advantage of (oh no, AAPL is down 50%, better sell, wtf, price shot right back up, rage).
It's safer and smarter to just have everyone agree on convenient blocks of time to crowd into the market. During those periods of time the market can be assumed liquid. The price abstraction works.
"But I'm a big boy and I want to live in the danger zone, let me trade at night!" Go right ahead. It's not only possible, it's readily available and people do it all the time. You can probably request some degree of after-hours trading from your brokerage right this minute. It's usually pretty easy -- usually you just have to ask for them to enable permission and promise that you know what a limit order is. Usually market orders are disabled, too, because they know that plenty of people would hit "accept," shoot themselves in the foot, and complain anyway :)
Bots wouldn't be required to provide liquidity during night hours. People living on the other side of the world will do just fine. We live in a global world now and people can buy stocks wherever using the internet, not just in the physical exchange like in the old days.
...and they can trade after hours just like anyone else who jumps through the minor hoops, yet crazy price action after hours is still an observational facts.
> Exchanges are also closed on various bank holidays which are different in every country
You can't settle on a bank holiday, because the banks are closed. If you trade on a day you can't settle, you're going to have two days of trading settling on the same day later, which is going to be weird.
Yup, that's why I think that stories about the benefits of having HFTs providing micro-second liquidity are bunk. Even without holidays and weekends, large stock exchanges only operate 7 hours per day, with a 17 hour gap of non-liquidity every day.
Actually, it’s mostly down to the computers now. Having downtime is advantageous to the primary customers of the stock market. If you have the same “off and on” times as your competitors you can ensure your operations are structured in such a way that you don’t have to deal with a whole class of systemic risks, no need to roll out up’s to FPGA powered acceleration devices live where the smallest mistakes can cost money for every second they are wrong let alone if they are broken … to more mundane things like being able to reprocess the data trading data and analyse performance vs other prediction models… effectively the downtime is for the high frequency traders and the algorithm traders and all the players paying for direct access to the stock market for their computer systems… it’s effective a digital cage match from bell ring to closing time and it’s in the best interests of all the competitors to only have to fight the same 8-12 hours in the cage, lest it becomes a much more expensive 24/7 war of attrition.
In the US the stock market officially opens at 9:30 and closes at 16:00 NY time every day. The day return is the return from the first trade (the official opening price but it would take too long to explain the the difference) at or after 9:30 to the last trade at or before 16:00 (the official closing price) and the night return is the return from the closing price to the opening price the next trading day.
You can trade SPX (which is what SPY is based on) via IBKR after hours. SPX is only options though. They may have extended that to SPY as well now though, since SPY now has daily expiring options.
There's also S&P (ES), NASDAQ (NQ) and other futures. They trade 23/6, closing at 5pm EST on Friday and reopen on Sunday at 6pm EST. Otherwise, they're trading 23 hours a day, except between 5pm and 6pm EST Mon-Fri
Who/what is able to trade equities specifically (like SPY the ETF, or any of its underlying components like AAPL, META, etc.) pre-market and/or post-market?
Anyone that uses IBKR as their broker can trade what I mentioned above pre/post market (and some cases overnight). IBKR is a retail broker. I use them, for example. Most brokers in the US let you trade common stock before and after market hours, even ones like webull. That said, not every broker has the same pre/post market trading hours, but the better ones let you trade almost all day and night depending on the underlying equity.
Enough to dedicate an 60-90mins of my day to scalping one or two trades and then go about my day as usual. I have a consistent strategy I backtested and follow. I don't see a trade that meets my criteria, then I close my broker. Most people that day trade don't do that and that's why they lose money.
I've been trading for a while and don't suggest to others to trade futures[0]. It's essentially highly leveraged stock, but less risk than options.
Any investor can. If the option is not available to you, contact your brokerage to ask about it. Many (most?) brokerages require signing a waiver confirming that you understand the additional risk posed by trading in low-volume pre- and post-market yours.
