[TeMPOraL]

Why would encouraging non-insider training be desirable in the first place, other than to create a more high-status form of gambling, with higher spouse acceptance factor than smoke-filled room poker games? People with no inside knowledge[0] are just trading on vibes, how is that useful for the economy?

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[0] - Or external knowledge, but actual knowledge - thinking of hedge funds stalking CEOs as they fly in private jets, or counting cars in parking lots from satellite photos, to get some probability estimates on factors actually relevant to the performance of a business and possible future events.

[jfengel]

The stock market wasn't designed to be gambling. You're buying a piece of a company. They want people to come so they can raise money for expanding businesses. If insider trading benefits some at the expense of others, people won't come.

Obviously it has come a long way from that, and the markets have become more like gambling. You could probably allow insider trading at this point and the system would continue just fine.

[efromvt]

Hmm yeah it depends on your definition of insider. If you assume all raw information is public-ish, a market can reward those who can synthesize/operate on that knowledge to predict better. (The cars in the lot, etc. there is friction to this discovery; the knowledge can be communicated to others through the market after discovery to profit off the initial cost of discovery). There is symmetric competition to some degree. If you have true non public knowledge (I’m going to say something to tank the stock on this date) then you are purely extracting value from others because you will always win; they will never have that info and the incentive for anyone else to participate in price discovery would go away.

[naniwaduni]

Stocks are a financing mechanism. They're useful for the economy independent of the price discovery aspect in the much the same ways that lending is, except that instead of receiving an obligation of future payment you're compensated on vibes.

[dasudasu]

Non-insider trading is liquidity. That’s why people pay for retail trading volume (payment for order flow). Not because of nefarious reasons. Just because it represents liquidity. With no liquidity it’s impossible to enter or exit trades efficiently.

[jfengel]

Though at this point volume is far higher than needed for liquidity. We do not need companies holding stocks for a millisecond in order to squeeze out arbitrage, and we do not need day traders hoping to arbitrage noise.

The stock market would not be noticeably less liquid if people had to hold stocks for 24 hours, but volume would drop like a rock.