Thursday, May 6, 2010

Dow Plunges almost 1,000 Points, Snaps Back - High-Frequency Quant Trading Horror

It was a free fall when it was happening. I was sure that the market circult braker (on 10% fall) would kick in in a second or two.

Some quant funds must have made a fortune. This is high-frequency algo bots for you piling on the downside, then switching to the upside. In the meantime, the system overload of the exchanges seems to have frozen many discount brokerages that the small retail traders/investors use during this violence, leaving many unable to access the accounts or trading screens.

I am so sure that the Senators discussing the so-called financial "reform" is on top of this high-frequency front-running and the highly disruptive damage it can cause in the financial markets. (NOT.)

Oh BTW, the supposed reason for the plunge was the rumor that European banks stopped lending because there was no liquidity.

The latest rumor is that one trader in a major brokerage had a "fat finger" moment, and put 16B (billion) shares order instead of 16 M (million). Algo bots don't care, and they vigorously exploit the opportunity.


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