Reading this story makes me draw the opposite conclusions to the author. Instead of ignoring the news let’s pay attention to it, and then do the opposite of what the storytellers are recommending.
This would allow common people with a few thousand dollars to act on news and make meaningful amounts of money, while hedgehog funds have to wait for their transaction to painfully slowly go through.
Let real people make money for once.
If you own 100000 shares of AMZN, it should take an entire quarter for your trade to go through. You will lose money if there is bad news.
If you own 1 share of AMZN, it should take 1 ms. If you are a super well-networked intern and figured out the bad news, bravo, you just made a bunch of money.
And would need a way to backwards-track trades to make sure a single entity isn't placing millions of small trades...which would also require individual verifiable identities being linked to each trade.
That way you get a bigger pie to share around.
In any case, your suggestion wouldn't really work: the insider who would benefit would mostly be high up managers, not anymore 'real people' than the (relative) corporate outsiders who run the hedge funds and vulture funds etc.
Second, who would the retail traders trade with on those news? Market makers would go on to quote huge spreads, or not trade at all. Those institutional investors you want to hobble ain't so stupid. (And those that are, wouldn't last long.)
If you have better access to information, because of a leak, you are better fit, better networked, and should be rewarded for it.
At the same time, those high up managers would probably be trading millions of dollars worth of shares -- their trades should go through slowly, and that is a mechanism that would prevent them from benefitting from it.
The person who benefits the most, percentage-wise, will be the dude who sweeps the floors at Amazon and sniffed the bad news based on, say, the times that people were coming in and out of work. Or the intern who found a huge security vulnerability and shorted the stock before disclosing it. These people should be rewarded. These people will get a few months' worth of rent while the millionaire just gets an additional Michelin one-star dinner, at best. And the billionaire CEO who owns a shitton of shares will lose money because he has enough shares that his trades will be delayed by an entire quarter.
In any case: you can remove the laws that make insider trading various shades of illegal in various countries around the globe. However, companies would very likely still insert clauses in their employment contracts that forbid insider trading. (And have you eg forfeit any profits you make to the company plus a hefty extra penalty on top.)
If you wanted to get to the situation you describe, you'd have to make a law that makes these kinds of clauses unenforceable. That's probably pretty hard to get right, if you still want companies to be able to protect trade secrets with contracts.
How are you planning to make big trades go slow? I mean, mechanically? And, as I asked earlier, who do you think would be the willing counterparties for those retail trades when you make the life of market makers harder?
(Btw, I didn't downvote you.)
Sure, why not? I mean, impose either on a broker-level or on an exchange-level that if an account which holds 100K shares of X makes a trade of X, it will be 3 months between clicking "place order" and when that trade actually gets put into the order book. But if an account that holds 1 share of X makes a trade of X, it goes into the order book as soon as they click the "place order" button.
Optionally, also make the order book publicly visible and anonymized.
Optionally, also make pending delayed orders to go into the order book publicly visible and anonymized as well.
You'd also have to apply the same treatment to all derivatives. Especially in-kind settled futures.
You'd also need to take dark pools and internalisers into account, ie people trading outside of the exchanges.
You'd also need extra rules that would prevent people from splitting their portfolio over multiple accounts.
How would you deal with eg indexing mutual funds that are held by retail investors? Presumably you want retail investors to be able to trade as fast as before, and I also assume that you don't want to force retail investors to do all their investing in individual stocks. Now, if money is flowing into a index fund, should they be allowed to buy more stocks?
I specifically picked indexing funds here, because they don't trade because of any information they got: they just want to mechanically hold the index. I also specifically picked mutual funds, because ETFs typically don't _trade_ in the traditional sense when money comes in or goes out.
ETFs don't buy and sell stock when they money comes in or out, or when the index changes composition. Bloomberg has an article: https://www.bloomberg.com/graphics/2019-etf-tax-dodge-lets-i...
Order books on exchanges are already publicly visible and anonymized. See eg https://www.cboe.com/us/equities/market_statistics/book/SPY/... or look at the website of your favourite broker.
You'd also have to enforce your delay globally, as otherwise people will trade in other countries.
And, after you fixed all those issues, my question remains: who would trade with all those retail traders? Institutional trading on exchanges would largely cease.
Not necessarily. You can also trade on securities going down in value (via shorting). Or you can even just bet on eg volatility going up or down or staying the same. (Eg via some derivatives and options.)
Or you can bet on relative price movements of some security vs another.
You are right about financial prices being forward looking, and news being backwards looking. And: by the time you have heard of something in the news, the professionals and their computers will have already traded on it a million times over.
This mostly applies to deeply liquid markets. If you are trading rare Lego sets or Magic the Gathering cards, you might still benefit from news.
There is a fun strategy trading the sessions in the US market. Basically some days the selling pressure can come from Europe, and as soon as those traders go to sleep (mid US trading session) the market reverses where Americans have different sentiment.
Just something to watch for and assume happens just like you might assume your bollinger band wedge breakout doji is telling you anything too. Itll probably fail a backtest, or you buy some SPY dailies and are right one or two times to retire.
The trading session ends at 4 PM ET, which is 8-9 PM in Western/Central Europe. I guess you meant when professional traders in Europe “leave the office”?
Ignore the advice. Pay attention to the topic. The same heuristic works surprisingly well for politics. Whether a thing is going up or down won’t be gleaned from the news. But the fact that we’re talking about that thing versus this is material.
But that's not true either. They know nothing, as much as the rest of us.
The economy (and wider world) are reasonably predictable, it's just that the prices already incorporate all the predictions.
Today's stock price is more-or-less already the best predictor of tomorrow's stock price.