Saturday, 22 September 2012

The Flash Crash

The "flash crash" was an intriguing event that occurred on May 6 2010, where the Dow Jones Industrial Average plunged about 1000 points or approximately 9%, only to recover in minutes. Some companies dropped from a price of about $60 to like 1 cent - for no fundamental reason. The only answer was that a machine or a computer was the source of the trading, but questions remain - what went wrong? was it a rogue algorithm? was it intentional? but aside from those questions some market participants began to question the very integrity of markets now that computer and algorithmic and automatic trading has become such an endemic part of the market structure.

Among the theories to explain the flash crash are: "fat-finger" or human error, the impact of high frequency traders, large directional bets, changes in market structure, and technical glitches. While the event itself is very interesting, it is equally interesting to look at how the market is evolving, and the growing prevalence and influence of algorithmic/high frequency/quantitative/automated computer driven trading. This Dutch documentary (it is in Dutch, but the majority of speaking is in English) by Tegenlicht provides an excellent and in-depth look at the flash crash.  See also: Quants - The Alchemists Of Wall Street

..Buy the DVD on Amazon 
Finance Documentaries:

1 comment:

  1. Very interesting (aside from the Dutch language and the old geezer reflecting on life etc)... looks like it could possibly happen again one day...