Automated Trading Systems Could Create Panic Sell-off For Huge Financial Gain

Posted by politicalpartypooper on May 9, 2010

Thursday, May 6, 2010 will become a study for every financial college in America.  In just 16 minutes, the Dow Jones Industrial Index dropped just under 1,000 points, the largest inter-day drop in history.

At first, a fat-finger trade made by Citigroup was blamed.  Now, however, the blame is being laid on automatic triggers in the high-tech trading systems of Wall Street giants, like Goldman Sachs, Citigroup…basically any number of market makers.

But the one question that is not being asked is this:

Why are these high-tech trading systems programmed to panic?

Because that’s exactly what they did, and as I study them, I don’t see how there is any way of avoiding another computer-generated panic sell-off like the one we experienced last Thursday.  Institutional investors often use such systems, as well as banks, and the problem with these systems is that while they protect their user’s positions in the Market, they are all using the same algorithms and the same triggers to sell, which leads to…you know…1,000 point drops in the Dow in less than a quarter-hour.

What’s the danger?  Well, Thursday is one such danger, for example.  Millions of people lost millions of dollars in sixteen minutes.

There’s also the idea that if these trading systems can create a panic sell-off, they can also create a level of control that would allow a less-than-moral trader or Market Maker to cause a panic sell-off for huge financial gain. I’m not saying that’s what happened on Thursday.

I’ll leave you to your own conclusions.     Ω


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: