The Fruits of Civilization (31-2-2) Computerized Stock Trading

 Computerized Stock Trading

The symbiosis between technology and finance has accelerated the pace of the financial markets beyond mere human capacity at all levels of the financial system. Whatever can go wrong, will go wrong, and faster and bigger when computers are involved. ~ Chinese American finance professor Andrew Lo

Programmatic trading by computers set off the market crash of 1987 that came to be known as Black Monday. At that time, the significance of algorithmic trading was slight compared to what it has become.

Technology has utterly transformed the financial system. The vast majority of day-to-day trading is done purely algorithmically. ~ Andrew Lo

It is a rigged game. ~ American stock market trader Sal Arnuk

On 6 May 2010, the US stock market seriously swooned in a mere 5 minutes, and share prices became incomprehensible for a half hour. A single firm, Waddell & Redd Financial, caused the conniption by trying to programmatically hedge its investment position in an aggressive and abrupt manner, to which the entire market took umbrage.

Another such episode ensued on 1 August 2012. The responsible brokerage firm, Knight Capital Group, lost $440 million in minutes to algorithms gone haywire.

On 15 October 2014, the US Treasury market crashed for 10 minutes. Experts hypothesized at the time that the “activities of electronic trading algorithms” were to blame, but no proof has been found of how it happened.

We don’t understand the financial network. Even regulators don’t. ~ Andrew Lo

On 8 July 2015, the New York Stock Exchange was paralyzed for 4 hours by a software update the exchange’s engineers installed the night before.

People think all this complexity is somehow inevitable. It’s not. It’s there to shield wealthy and powerful people when things go wrong. ~ American law professor Frank Pasquale