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0 pointsthrowaway20371y ago0 comments

This comment is weird to me. Are you saying that the "financial sector" (incredibly vague term) makes 30% of US GDP? Not even close. A trivial Google search proves that it is way off base.

According to this source: https://www.statista.com/statistics/248004/percentage-added-...

   > finance, insurance, real estate, rental, and leasing ... is 20.7% of US GDP.

Also, most of the GDP in the "financial sector" is in commercial banks and insurance companies. Yes, they take risk, but not the kind being discussed here.

Since the original article is about Jane Street's financial market making business, let's focus on investment banks. What percent of US GDP do you think that investment banks and trading hedge funds represent? It is tiny. I would be shocked if it is more than 5%.

    > What would happen if equity markets were only open a very short period a day? Say you have one auction a day, or maybe two, and no continuous trading?

This seems like a question from Econ 101. Let's expand that to all free markets in the US. What if homes could only be bought or sold once per month, instead of daily? How about agricultural products? Quickly this argument falls apart. Wholesale and financial markets with continuous trading have existed for centuries. The purpose of continuous trading (or very frequent auctions, like the agro auctions in the Netherlands) is price discovery. If you do it less frequently, then you have weaker price discovery and worse (less accurate) prices.

Finally, professional financial market makers have an important role to play in reducing the size of bid-ask spread. I recently bought some 1Y US Treasury bills using Interactive Brokers. I was stunned by how tight are the spreads, and I am a "Retail Normie/Nobody". Absolutely, this was not available to people like me 30 years ago. Who do you think is providing this liquidity that keeps bid-ask spreads so tight?

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FabHK1y ago

The finance sector contributes only 7% of GDP, correct. One of the sources I had in mind [0] cites 31%, but that was revenue as a proportion of GDP, which doesn't really make sense. However, the financial sector takes about 30% of US profits [1].

With respect to trading only once a day, I don't think your ad absurdum counterarguments hold water.

The HK stock exchange used to trade 4.5 hours a day, from 10 to 12, and then after a generous 2 hour lunch break from 2 to 4:30. How is trading 8 or 12 hours a day better for pension funds?

Price discovery with a limit order book that's cleared once a day might work just as fine as when it's spread out over hours, maybe even better.

Think about some major event affecting a company happening on the weekend. Then everyone can put in buy/sell orders with adjusted prices, and they'll be cleared during the morning auction. How is that worse than if the event happens intraday, and only the most switched on automatic HFT will pick off people still quoting at the old price, then the professional traders in hedge funds will pick off people?

As I said, the difference would be that the gains of the fast movers would instead be distributed among those on the "wrong side" of the news. Why should price discovery be worse?

Finally, what makes you think that liquidity and bid-ask spread concentrated in a minute a day would be worse than spread out over many hours a day?

[0] https://www.investopedia.com/ask/answers/030515/what-percent...

[1] https://conversableeconomist.com/2022/09/13/financial-servic...

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