jonc211 , 11 hours ago

If you strip things back, the most fundamental point of a market is to bring buyers and sellers together and to enable price discovery.

The price of a financial instrument you see on a stock exchange or similar is simply the last traded price between a buyer and a seller. If you want to buy or sell something, then the price you get depends on who wants to sell/buy on the other side and what price they have put an order in for.

The more trades going on in the market, the more likely it is that you will be able to buy at a price close to what you see as the last price in the market.

If you only allow trading every hour, then you lose some of that price discovery.

Additionally, as already mentioned, trades would likely still happen, but away from the designated marketplace. If I want to sell something, then I may just ask who else has the thing I want to sell and try to negotiate a price directly with them.

That way, fewer trades happen in the marketplace and more trades happen in private away from there.

That sort of limited trading does happen for some very niche products that don’t have a lot of potential buyers and sellers. For common financial instruments, have a lot of participants wanting to trade, having a centralised marketplace helps avoid the issues that would come otherwise.

Now, you can argue that in practice it doesn’t work as well as the theory, and I would agree there. If you are a HFT, then you can make money by getting in milli or microseconds ahead of others.

For a lot of market participants, that doesn’t really matter though. The big banks typically don’t do that sort of trading. They are buying and selling on behalf of their clients, both individuals and companies that want access to the market. The bank makes their money by charging a margin to their client (similar to how it works for pretty much any retailer), and the fact that the HFTs are making all these trades helps them with price discovery and liquidity (ensuring there is someone to buy what they want to sell, or sell what they want to buy)