[LINK] Financial cyberspaces, and flash crashes
marty at supine.com
Sat Mar 17 15:56:26 EST 2012
Apologies for reviving month old threads but...
$quoted_author = "Roger Clarke" ;
> Apart from that, I couldn't understand from the article how sellers
> could react fearfully in the millisecond timescale, in order to put
> in sell orders with successively lower prices on them, such that the
> sale-prices could spiral down so rapidly.
People can't. Computers can.
> Are there really stop-loss orders in place for such large volumes of
> stocks that small price-drops can trigger bandwagon effects? If so,
> that's what needs to be focussed on as the underlying feature, with
> speed of execution playing a bit-part (so to speak) in the fracas.
The problem is the algorithms used to generate the buy and sell orders. They
are not really talking about the simplistic, deterministic ones like "stop
loss" orders, although the presence of these can exacerbate a swift price
move down. The real issue is less deterministic ones that use multiple
parameters which can create nasty feedback loops both for themselves or
by interacting with other algorithmic trading engines.
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