It may surprise you to learn that most of the stock trades in the U.S. are no longer being made by human beings, but by robot computers capable of buying and selling thousands of different securities in the time it takes you to blink an eye. These supercomputers — which actually decide which stocks to buy and sell — are operating on highly secret instructions programmed into them by math wizards who may or may not know anything about the value of the companies that are being traded. It's known as "high frequency trading," a phenomenon that's swept over much of Wall Street in the past few years and played a supporting role in the mini market crash last spring that saw the Dow Jones Industrial Average plunge 600 points in 15 minutes. Most people outside of the industry know very little, if anything, about it. But the Securities and Exchange Commission and members of Congress have begun asking some tough questions about its usefulness, potential dangers, and suspicions that some people may be using computers to manipulate the market.
Tag Archives | Stock Market
A computerized selloff possibly caused by a simple typographical error triggered one of the most turbulent days in Wall Street history Thursday and sent the Dow Jones industrials to a loss of almost 1,000 points, nearly a tenth of their value, in less than half an hour. It was the biggest drop ever during a trading day. No one was sure what happened, other than automated orders were activated by erroneous trades. One possibilility being investigated was that a trader accidentally placed an order to sell $16 billion, instead of $16 million, worth of futures, and that was enough to trigger sell orders across the market. The Dow recovered two-thirds of the loss before the closing bell, but that was still the biggest point loss since February of last year. The lightning-fast plummet temporarily knocked normally stable stocks such as Procter & Gamble to a tiny fraction of their former value and sent chills down investors' spines. "Today ... caused me to fall out of my chair at one point. It felt like we lost control," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.
When Tiger's speech causes a more dramatic volume impact than the FOMC you know this market is all sorts of perfectly efficient. Bloomberg's chart of the day below shows the total NYSE volume change in-between when Tiger started his convoluted and meandering mea culpa, and when he ended.FOMC stands for Federal Open Market Committee, a.k.a. "The Fed" that many disinfo.com visitors have plenty to say about. So Tiger had more impact than a Fed Discount Rate hike announcement that day, good to know for the next time I talk to some finance guy who cold calls me about getting into the market... Seems like just more proof that, as the Onion recently put it (brilliantly), money is a "symbolic, mutually shared illusion."