notice you're contradicting yourself: active traders don't only trade with other active traders, they also trade with those same passive funds that bet on continuous growth in fundamentals of companies and the hope that eventually that growth will be reflected in the stock price.
then consider just how much shares passive funds move all the time due to continuous rebalancing they do due to their self-imposed mandate. (reminder: etfs hold ~$5T worth of assets.)
> Then consider just how much shares passive funds move all the time due to continuous rebalancing they do due to their self-imposed mandate.
One of the big selling points of passive, market weighted ETFs is their low turnover and high tax efficiency. Vanguard’s S&P 500 ETF (VOO) has an annual turnover of 4%, for example. That’s nothing compared to the turnover in an actively traded portfolio.
Sure they do a lot of trading volume to account for inflows and outflows from the ETF. But one of the very nice properties of market weighting is that there is hardly any rebalancing needed as individual assets drift in price.
Yes indeed, last I heard passive funds made up 50% of AUM but only 5% of trading. In other words, 95% of price discovery is still done by active managers.
then consider just how much shares passive funds move all the time due to continuous rebalancing they do due to their self-imposed mandate. (reminder: etfs hold ~$5T worth of assets.)