Rick, Alan, Ira
Hey TFF, where ARE you?? You started this!! LOL
My post was not intended to be an endorsement of pre-market and after-market trading as a great new device for serious traders. I think there is a "chicken and egg" syndrome at work here. The "natural open" Alan talks about is distinct from pre-market activity, and may very well be impossible to read pre-market at this time, but this is largely because there is such a thing as a market "open" in the first place. I agree that as long as the professionals restrict the bulk of their trading to market hours, the sentiment of the "important money" will not be known until after they start playing. But if it's true that ECNs account for something like 30% of market activity, and if the online brokers give their clients access to the ECNs outside of market hours, there is great potential for growth in volume during that time. If enough individual investors have each other to trade with, they will respond. After all, they never get to see what the smart money is doing until end of day anyway. These are the people I expect to drive up the volume pre-market, not the pros.
It seems to me that most activity outside of market hours now is from traders, the very people Alan contends should not be all that excited about trading at that time. I think he is right, at least at present. There is no doubt that a lot of what we see on ECNs is fishing for "out of the money" fills. But my impression is that most of those out of the money limit orders are sitting there all day long, and many are placed by people with only arms length market access (maybe because they have a job or something else that occupies their time). Traders may add a few orders now and then to fish, or more likely to avoid taking positions home, but those are not the majority of ECN orders hanging around before and after hours. Many of the out of the money limit orders are just that because the people who place them have to do it when there is no open market to interact with, so they "guess", place their orders, and walk away hoping that when the market opens they will get filled and that they will still be happy about it later.
My hypothesis is that if "ordinary people" can trade outside of market hours, they will be inclined to take the sure execution even if they miss their price by a little. WHY? Because I had it in mind to buy LSI today at 57 1/2 or better, didn't buy it at 57 9/16 or 5/8, and it ran to 61 before closing at 59 13/16. Someone who really wanted LSI at 57 1/2 might well have paid 57 3/4 or 58 to get it before the market opened, if they had opportunity, and someone holding it and was really nervous after yesterday might have sold it to them. Surely this is preferable to a "market on open" order, and less rigid than a limit order that might just barely miss. If investors start to meet like this, volume and liquidity will grow. That will attract more investors, and before you know it the gaps at the open will begin to smooth into ramps. Then (forbid!!) aggressive traders and even the MMs will not be able to resist and will add more fuel. What will stop it from snowballing is if the pros refuse to play. Do they have that much willpower? I wonder. |
