Nanosecond Trading Could Make Markets Go Haywire. The afternoon of May 6, 2010 was among the strangest in economic history.
Starting at 2:42 p.m. EDT, the Dow Jones stock index fell 600 points in just 6 minutes. Its nadir represented the deepest single-day decline in that market’s 114-year history. By 3:07 p.m., the index had rebounded. The “flash crash,” as it came to be known, was big, unexpected and scary — and a new study says flash events actually happen routinely, at speeds so fast they don’t register on regular market records, with potentially troubling consequences for market stability. Computer algorithms changing world of finance. In the time it takes to blink, thousands of trades will be made when the Toronto Stock Exchange opens.
Blinking takes 300 milliseconds, which is 0.3 seconds. In fact, trading is so fast it’s processed in microseconds, one million of which make a second. It adds up to global financial markets working at warp speed — the speed of money. Getting information fast has long been a recipe for stock market success. In 1815, the Rothschild bank in London made a killing when it was first to hear of Napoleon’s defeat at Waterloo. All About Ultra High-Frequency Trading: Algorithmic and High Speed Trading Strategies.
Another month, another high-frequency trading algorithm gone wild.
Although investigations are still ongoing, what seems to have happened is an algorithm trading for Knight Capital Group, a market maker (a company which provides liquidity to the market), went a bit mad around 10am EST. Business Insider’s Eric Platt gives us this chart, of Vanguard Utilities ETF, as an example of what went wrong. The green circles are best bids – the price people are willing to buy at – and the red circles are best asks – the price they’re willing to sell at.