0

For example, if I am trading a SP500 ETF on the NYSE, the stock exchange opens at 3:30pm CET. Due to the time shift, the stock exchanges in the EU open at 9am CET, meaning I can already gather chart information from SP500 ETFs that are traded here.

Real life example: The SP500 ETF (even though it's the one traded on an EU stock exchange) gains a lot of value again after the corona virus crash. Is it practically possible to use this information to my advantage by immediately buying shares at the NYSE when it opens later? I know that technically the charts aren't connected with each other as each stock exchange trades it's own shares but in reality they are still correlating.

To be fair, due to the duration of an order I think it wouldn't be possible to take advantage of this small marge, but what about big banks with higher volume and high speed trading?

  • No. The other participants have access to the same market information, so you don't have any particular advantage. The stock price also doesn't say what some stock is worth, but what the market as a whole thinks the stocks are worth. In theory, your valuation ought to be independent of any stock prices. – amon Mar 9 at 11:40
  • I know that theoretically it is'nt possible because, as you stated, other participants have access to the same market information aswell. But what are the actual technical/practical obstacles why this does not work? – Tobias Kaufmann Mar 9 at 18:02
4

Real life example: The SP500 ETF (even though it's the one traded on an EU stock exchange) gains a lot of value again after the corona virus crash. Is it practically possible to use this information to my advantage by immediately buying shares at the NYSE when it opens later?

No. The simple reason why is that even if you buy immediately when the market opens, that's still too late.

As an example, imagine that there's a single ETF which trades both in the United States (from 9:30 am to 4:00 pm US Eastern time) and in Great Britain (from 4:30 am to 11:00 am US Eastern time).

Now let's imagine that it's 4:30 am Eastern, and the ETF begins trading at $80. However, the price of the ETF increases over the course of the day, so that by 9:25 am Eastern, the price of the ETF is $100.

Can you take advantage of this by buying shares of the ETF in the United States immediately upon open? No, because when it starts trading in the United States, it will start trading at about $100, not at $80. You'll be paying $100 for shares worth $100, which is, of course, a profit of $0.

Maybe you're thinking that when the market opens, the opening price is the same as the previous day's closing price. This is not the case. The market won't open at $80 and then immediately rise to $100; it will simply open at $100.

| improve this answer | |
  • Thanks, that clarified it for me. I was thinking that the opening price always equals the previous day's closing price. – Tobias Kaufmann Mar 10 at 12:04
  • @tobias The exchange is just an exchange and doesn't set prices (the stock price just reflects current ask/bid average). However, exchanges generally have an opening auction where the current order book is processed, e.g. with pre-opening bids or open orders from earlier trading days. Even if the auction doesn't result in trades, it results in an indication of the price that can then be used when trading opens. – amon Mar 10 at 19:50

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.