Stock-Trading Computers Helped Screw Up the Markets Yesterday

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Photo: Timothy Clary/AFP/Getty Images

It's still not clear what, exactly, caused the Dow Jones to plunge hundreds of points in just minutes yesterday. The market was already sliding when something went awry — possibly what we heard yesterday about someone at Citigroup selling off more than they intended by mistakenly pressing "b" for "billions" instead of "m" for "millions." But even if that was the case, we can't place all our blame on that one boneheaded move. Because this human error may have been made much worse by automatic electronic trading programs, or as our grandmother calls them, "the computahs."


One official said they identified “a huge, anomalous, unexplained surge in selling, it looks like in Chicago,” about 2:45 p.m. The source remained unknown, but that jolt apparently set off trading based on computer algorithms, which in turn rippled across indexes and spiraled out of control.

Many firms have computers that are programmed to automatically place buy or sell orders based on a variety of things that happen in the markets. Some of the simplest triggers are set off when a stock drops or rises a certain percent in the trading day, or when an index moves a specific amount.

But these orders can have a cascading effect. For example, if enough programs place sell orders when the overall market is down, say, 4 percent in a single day, those orders could push the market down even more — and set off programs that do not kick in until the market is down 5 percent, which in turn can have the effect of pushing stocks down even more.

This is the downside of putting the machines in charge. Well, that and when they inevitably turn on us with our own nuclear weapons. But rest assured, the SEC and the Commodity Futures Trading Commission are looking into this "unusual trading activity." And while it's good news that the falloff was just the result of some kind of mistake, and that American markets are climbing today on good job reports, stocks in Europe are still sliding over fears that Greece's debt crisis could ruin our hard-fought economic recovery.

Surge of Computer Selling After Apparent Glitch Sends Stocks Plunging [NYT]
European markets trim losses as US jobs data loom [AP via Google]