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As High Speed Trading Tanks Stock Market, Wall Street Panics

At the end of Thursday, Wall Street breathed a little easier. The Dow Jones Industrial Average finished the day down only 348 points. Earlier in the day the stock market had dropped a lot — 1,000 points and nearly 700 points during one panic-stricken stretch. On Friday Nasdaq canceled the trades of 296 stocks that fluctuated most. It seems that it was a toxic combination of algorithmic, or high speed, trading and fearful investors may be the culprit.

Wall Street panic on high speed

Thanks to high speed trading, a Wall Street system to prevent what happened to the stock market Thursday may have actually caused it. When a stock price falls rapidly the number triggers a “circuit-breaker” that briefly halts New York Stock Exchange trades on it. CNN Money.com reports that at about 2:45 p.m. on Wall Street, shares of Procter and Gamble fell around 10 percent. The breaker stopped NYSE trading on it for around 80 seconds. During that time, the stock was in high speed play on other exchanges.

How does high-speed trading work?

The NYSE, down about 400 points, took a breather on P and G, Accenture, Boston Beer Co. and others. There were investors in the meantime that were afraid the Greek debt crisis would need them in need of faxless payday loans and were trying desperately to sell them. How does this high speed training work? There are automatic programs in some people’s computers that began issuing tiny orders every millisecond. The computers had no offers to buy for stocks that had hit their NYSE circuit breaker. High speed trading ended up seeing the bid at $ 0. The high-speed trading computers, with greed in mind, are designed to add a penny to each trade to make a commission on every deal. The high-speed trading software placed millions of bets at 1 cent. Stocks were traded all the way down which triggered a massive sell off.

Crackdown on high speed trading?

The computer-driven panic on Wall Street Thursday has people calling for a crackdown on high speed trading. Reuters reports that the massive sell-off that pushed the stock of highly regarded companies into a tailspin showed different concerns that regulators can quickly lose control of the markets in the world of high speed trading. Democratic senators Edward Kaufman and Mark Warner said Congress has to investigate the causes of the market plunge, which at its deepest point wiped nearly $ 1 trillion off of equity values.

What is high speed trading?

High speed trading has caused average daily volume on the stock market to explode on Wall Street. The New York Times reports that there are powerful computers that enable high-speed traders to transmit millions of orders at lightning speed and reap billions at everyone else’s expense. Stock exchanges say many high speed traders account for more than half of all the trades done. What is high speed trading really? It is a compilation of computers that are so fast they outsmart investors, man, and machine. Apparently they also have the ability to outsmart themselves.

Article Resources

CNN Money.com

http://money.cnn.com/2010/05/07/markets/explaining_wall_street_turmoil/?npt=NP1

Reuters reports

http://www.reuters.com/article/idUSTRE6455ZG20100506?loomia_ow=t0:s0:a49:g43:r2:c0.099358:b33744350:z0

New York times reports

http://www.nytimes.com/2009/07/24/business/24trading.html

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