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Comment by michaelt | Hacker News Reader

See, here's the thing I don't understand about liquidity: If it's so valuable for trades to execute in microseconds instead of seconds, and the stock exchanges recognize this value and provide co-location etc to enable it, why are so many stock exchanges closed for half to two thirds of the day? [1]

Surely the 15+ hour shut downs are a much bigger limit to liquidity than a few microseconds here and there?

There's obviously no technical reason - I don't see Amazon or Google closing down their websites from 4pm to 9:30am. And if it's about the release of news, that only really needs a window of an hour or so.

[1] https://en.wikipedia.org/wiki/List_of_stock_exchange_opening...

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I found a similar question on Quora [1], with an answer by an ex-quant. It seems to boil down to tradition and bureaucratic inefficiencies by the involved parties. So I agree, this makes the whole liquidity argument seem weak.

[1] http://www.quora.com/In-the-24-hour-world-why-do-the-New-Yor...

I worked in the industry for a little while.

At this point, some companies depend on having that daily downtime. Their whole development is based around the fact that they will have guaranteed downtime. It's built right into their software stack.

Trying to fiddle with this expected downtime would throw (parts of) the industry into turmoil.

It's just a historical quirk, but it's probably here to stay.

All the people who work in finance I've spoken to have imputed to me that the industry is on the cutting edge, that they will and are able to go to any lengths to execute trades faster, and that they earn their bumper salaries by being the most talented technologists out there. They tell me stories of FPGAs and how they certainly couldn't use garbage collected languages and about people cutting holes in walls to shave valuable feet off cables.

Now, I'm sure that in the absence of any need to they haven't done the work to achieve 24-hour operation, but I didn't get the impression it would be beyond the abilities of the entire industry.

Do you think the people I've talked to misrepresented the industry, and it's not as advanced and competent as they made out?

That's definitely not representative. Perhaps you've spoken only to guys doing HFT. A lot of trading systems are written in Java, and something like 20ms between seeing a trigger and sending an order to the market is fast enough for most needs.

I think for 24/24 operation though, the problem isn't really a programming one but simply the sheer number of people who'd have to work in shifts. Traders, engineers, middle office, maybe even compliance or quants... all these people are really expensive. You can't just leave a system running without people to monitor risk, check for reporting breaks, approve transactions, etc. The end of day reconciliations and reports are also much easier done with the exchange down.

You don't understand. Not everything is written in C. There's a backend system for reporting OATS that starts at 5 PM. If you need to make a non-trivial change you better not deploy it during market hours. Most of these systems are written in Java by guys who aren't at the firm anymore and didn't care when they were. You say cutting edge (which I would strenuously debate). But it's not magic -- in fact it's actually quite mundane when you get down to the nuts and bolts.

Surely there are ways to get rid of it without the transition being so traumatic. For example, the change could be announced a few years prior, and the downtime could go down by an hour per year.

To put things into perspective, the company I worked for responded to bug reports by hiring a team of people whose role was to manually alter the database any time a customer reported a data problem. Dozens of times per day. In other words, instead of fixing the software, it somehow became a reasonable idea to dedicate employees to fixing the symptoms by hand. It made sense in hindsight: they were making so much money that they took the path of least resistance. Paying employees to fix the problem immediately was quicker than trying to hunt down a competent programmer to try to fix the problem without causing more problems.

The change would be traumatic no matter how long they are given to plan for it.

Oh, here's another reason I forgot to mention: You can capture huge profits by exploiting the opening and closing few seconds of the market. A huge portion of all daily trades happen within the first few and last few seconds of the day. So there's a financial incentive to leave things as they are.

Going to a continuous cycle will end techniques like "banging the close". That would be disruptive.

>the downtime could go down by an hour per year.

Just my opinion but I think that would just increase the pain and complexity of the transition.

or quote stocks in a separate "non stop" market

From a standpoint of market efficiency, I believe the weekend is a similar "test". Although, i agree that their are diminishing returns to a-synchronous opening hours.

It's true! A certain company has a trading platform that, when run, will wait until the markets open, do some setup stuff around the open, trade for one day, then do nothing forever. Some script comes by to kill -9 everything later in the night so it can be born anew.

the stock exchanges recognize this value and provide co-location etc to enable it

Not true. The exchanges charge hefty fees to colo in their datacentre. What you do with it is completely up to you. It's just more revenue as far as the exchange is concerned.

why are so many stock exchanges closed for half to two thirds of the day

In practice, this doesn't matter. When NYC closes, trading moves to Tokyo, then onto London, then back to NYC. Anything you want to trade, you can do so 24 hrs a day if you really want to.

You say you can trade around the clock by trading around the globe. But a position in New York can't exactly be liquidated in Tokyo. You can hedge for an approximation, but then you have cost of carry. Most markets are also completely closed on Sunday. It's not obvious to your parent why this should be. And don't even mention the half-day for stocks in the US around Thanksgiving, which is just silly.

Important things are 24 hours a day. Spot and forward FX, commodities, sovereign bond futures, Equity index futures, etc. See for example:

http://www.cmegroup.com/trading_hours/

CME tends to be closed for an hour a day for cleanup and that's it. US equities aren't a big deal compared to the size of bond or FX markets.

Trades executing in microseconds is about beating the other HFT. It's useless for consumers.

Price competition (one HFT bidding 10.01 instead of 10.00) and depth of book (the ability to buy 10,000 shares in one shot) is what helps traders.

Can't agree more (focusing on microsec vs nights/weekends). It's not an excuse to say they need to train/test their algos, they have entirely separate machines for that. For any other tech company live rollouts are a fact of life. I'd suspect the reason is historical and based on a single person's practical workday, if you extend it to 24/7 then naturally you'd have to have several shifts. Same reason why they are closed on holidays, to give people a break. So I'd suspect it's to benefit the people involved and not the machines which I'm certain can be adapted.

Excellent point! Being able to trade on information revealed overnight would have much greater value than being able to trade at an even smaller sub-second interval.

Since the marginal value of additional liquidity decreases rapidly, I've often wondered if having a fixed resolution (say, one trade per minute) would actually be beneficial.

Nobody can realistically trade a stock based on sub-minute changes in information anyway, and having a fixed resolution would eliminate the advantage some players have by having more servers/etc. After all, if we are chasing liquidity, allowing some players in the market to have an advantage restricts the number of players able to participate which lowers liquidity.

Liquidity during trading hours is important because an open market with little liquidity makes it difficult to to sell and buy assets in significant quantities. Even reasonably sized transaction start having massive effects on price. Short-term price stability gets lost and what you ultimately have is a significant increase in transactions costs.

Ultimately, liquidity during trading hours is a different question from what hours the exchange is open for trading in the first place.

Multiple reasons... History being one. They clear the books after market too, it's a big part of catching the crooks and frauds. Almost certainly makes auditing easier.

Is executing trades quickly bad? Or is flipping an equity quickly bad? I cam see no good that comes from buying and selling in milliseconds; the tax should inversely exponential to the hold time or something.

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