[bluGill]

When S&P announces results of the S&P 500 it is for fictional stocks: they don't have a fund of their own. They just say that if had bought these 500 stocks in 1957, and traced only on the dates that the dates/prices the index did you would have so much. This is impossible to do though (expect for the smallest investors), the very act of trading a stock changes the price. Most mutual funds have enough stock that they have to consider the effect of their trade on the price of the stock: if they want to invest in a company it is done over weeks and months to ensure the price doesn't change just as a result of their actions.

A simple example: lets say company X and Y are both on the index and they decide to merge one company X on such an such a date. In order to keep 500 stocks in the index S&P has to choose something to replacement. You don't have to be very smart to see that X and Y are in talks about merging months in advance. It isn't hard to figure that the stock S&P chooses will be one of a few: Buy a bunch of them each at today's prices. When the merge happens all those index funds now buy the replacement stock which drives the price up, you have shares at an inflated price to sell to those funds. (You have figure out when to sell the stocks that were not added - but S&P is unlikely to add a bad stock so as an investment these are likely to do okay). This is easy if the index funds try to hold exactly what the S&P 500 has in it.

Because of the above index funds promise to mirror the S&P500 results, but not the actual stocks. It is easy to say mirror results, it is much harder to pull that off, even if we ignore those above who are trying to cheat you, index funds tend to be the largest funds (because they do so well they are popular!) which means most of your trades will affect the price of the stock.

There is a lot more involved (much of it that I don't know), but the above is a simple example that will get you on the right track of thinking.

[kgwgk]

But you can trade at the closing price, which is the one used by S&P to do their numbers, can't you?

[readams]

No you can't. You can only buy a stock based on the set of offers to sell that stock. The closing price is the just the price that marked the last trade of the day, and isn't otherwise special.

[chollida1]

Of course you can buy at the closing price. There are MOC and LOC orders for doing just that (Market On Close and Limit On Close).

The former indicates that you must get your order filled at the closing price, the latter allows you to specify a limit at which you'll go to, in order to trade at the closing price.

How else would funds that need to trade at the closing price, actually trade at the closing price?

Now you may not like the closing price, but that's another story.

> The closing price is the just the price that marked the last trade of the day, and isn't otherwise special.

I guess i should also point out that many ETF's mark their value based on the closing prices of the NYSE or Nasdaq making their closing prices very important.

[readams]

Those are still just ordinary trades that happen at the end of the day. You're still just pulling orders off of the queue of sell orders if you're buying. The final close price will of course be the price after these trades are executed, and you aren't guaranteed to even get the close price.

[chollida1]

> Those are still just ordinary trades that happen at the end of the day. You're still just pulling orders off of the queue of sell orders if you're buying. The final close price will of course be the price after these trades are executed, and you aren't guaranteed to even get the close price.

I'm pretty sure at this point I'm being trolled but just in case you are being serious and don't know how to google......

https://www.nyse.com/markets/nyse-arca/auctions

[readams]

Are you disputing that if you issue such a trade that you are not guaranteed to be able to execute it? Because, I assure you, there is no such guarantee. I'm not even sure why this requires some special explanation. There have to be enough people willing to trade at that price. The exchange isn't going to force people to trade with you.

[anonymousDan]

But what if there aren't enough people willing to sell at the closing price to get all the shares you need?

[infinite8s]

Then you don't get all the shares you need. It's a marketplace like any other with slightly more complicated rules. Nothing magical about it.

[anonymousDan]

Right, that was kind of my point as the parent seemed to be implying you could perform an arbitrary amount of trades at the closing price and would be somehow magically guaranteed to fill the orders. Or at least that's how I read it. Interesting discussion nonetheless.