Yes, other orders which are conditional on the price can also result in the market clearing price being undefined.
How do you determine what price to trade at? Is it the market clearing price with lowest/highest volume?
I don’t see how you’ve explained how batching transactions is positive-sum; would it reduce transaction costs? Would it somehow provide net benefit to both buyers and sellers as compared to executing trades as they can be, rather than randomly benefiting some buyers at identical cost to the sellers?
Would the magic surplus be greater if trades were only executed quarterly, or if they were executed hourly- why daily, and not more or less frequently? It’s certainly a solid Schelling point, but the math doesn’t care about when NYC wakes and sleeps.
We’d have to look into the specific rules here. The only thing I do know is limit orders trade before market orders do and orders are time stamped. In other words, the current institutional structure is more about managing order flow than establishing the clearing price when supply and demand are considered in the larger context—such as buyers and sellers who want to participate today but will be sending the orders at much different times during the period the market is open.
Draw a simply Supply and Demand picture, and assume those curves do represent the true price quantities of the market participants that exist during the given period. The intersections would then be the standard economic model clearing prices. Let those curves represent one day.
Currently, under the order flow regime, the when ever the orders come in at attempt to find a matching order on the other side occurs. But that would allow a supplier that has a price in the supply curve that is above the intersection to be pairs with buyer on the demand curve that is at or above the ask price.
The difference between the transaction price and that implied market clearing price when considering the days actual supply and demand characteristics seems to represent the loss of value the buyer would have saved if they could have bought at the theoretical market clearing price, which is only known when the day closes. This also represents a transfer to the seller with the above market price. This seller, on some pretty standard market logic, really should not have been able to get that trade as the price asked was too high.
Changing the rule about matching trades (supply and demand) at the end of the day rather than as the orders come in prevents that type of inefficient pairing of buyer and seller.
To my knowledge that is what happens in the morning for all trades, and why sometimes when unusual events occur the opening for a security is delayed while the market or market makers try to figure out just where the open clearing price really is.
Large institutional and large investors will also use some slightly different orders and pay something or an weighted average price for the shares they sell on a give day. This appears similar to my suggestion and I would suggest lends support to the underlying thought.
You are correct that the duration of the period might matter and a day may not be the right one. I picked that because generally information is fairly consistent over a day so revision to orders places should me small.
Yes, other orders which are conditional on the price can also result in the market clearing price being undefined.
How do you determine what price to trade at? Is it the market clearing price with lowest/highest volume?
I don’t see how you’ve explained how batching transactions is positive-sum; would it reduce transaction costs? Would it somehow provide net benefit to both buyers and sellers as compared to executing trades as they can be, rather than randomly benefiting some buyers at identical cost to the sellers?
Would the magic surplus be greater if trades were only executed quarterly, or if they were executed hourly- why daily, and not more or less frequently? It’s certainly a solid Schelling point, but the math doesn’t care about when NYC wakes and sleeps.
We’d have to look into the specific rules here. The only thing I do know is limit orders trade before market orders do and orders are time stamped. In other words, the current institutional structure is more about managing order flow than establishing the clearing price when supply and demand are considered in the larger context—such as buyers and sellers who want to participate today but will be sending the orders at much different times during the period the market is open.
Draw a simply Supply and Demand picture, and assume those curves do represent the true price quantities of the market participants that exist during the given period. The intersections would then be the standard economic model clearing prices. Let those curves represent one day.
Currently, under the order flow regime, the when ever the orders come in at attempt to find a matching order on the other side occurs. But that would allow a supplier that has a price in the supply curve that is above the intersection to be pairs with buyer on the demand curve that is at or above the ask price.
The difference between the transaction price and that implied market clearing price when considering the days actual supply and demand characteristics seems to represent the loss of value the buyer would have saved if they could have bought at the theoretical market clearing price, which is only known when the day closes. This also represents a transfer to the seller with the above market price. This seller, on some pretty standard market logic, really should not have been able to get that trade as the price asked was too high.
Changing the rule about matching trades (supply and demand) at the end of the day rather than as the orders come in prevents that type of inefficient pairing of buyer and seller.
To my knowledge that is what happens in the morning for all trades, and why sometimes when unusual events occur the opening for a security is delayed while the market or market makers try to figure out just where the open clearing price really is.
Large institutional and large investors will also use some slightly different orders and pay something or an weighted average price for the shares they sell on a give day. This appears similar to my suggestion and I would suggest lends support to the underlying thought.
You are correct that the duration of the period might matter and a day may not be the right one. I picked that because generally information is fairly consistent over a day so revision to orders places should me small.