A five-month investigation by the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) has reveal that high frequency trading is the root of all evil. The spe at which these transactions take place is beyond the comprehension of a normal person, or as Kevin Slavin puts it in his famous TX keynote:
“It takes you 500,000 microseconds just to click a mouse. But if you’re a Wall Street algorithm and you’re five microseconds behind, you’re a loser.”
The introduction of Facebook stock
The second time a Flash Crash occurr was during the introduction of the Facebook stock . On the morning of Friday, May 18, the Facebook list to data stock (FB) was list for the first time on the American NASDAQ stock exchange. The introduction of the stock was follow with great interest by millions of people. Everyone was curious about how much money the world’s largest social network was really worth.
It soon became clear that things were not going well with the stock. The stock dropp four points in a short time, from 42 dollars to 38 dollars, the height of the official introduction price. At 11:49 something strange happen. The price of the stock stall. For five minutes the stock seem to stand still, only to shoot up again.
Changes in milliseconds
What exactly happen in those 300 seconds? Nothing can be seen with the nak eye, but when you zoom in on the stock price, differences can be observ. Large quantities of shares chang hands in milliseconds. On one side of the spectrum, intermiaries bought those large quantities so that the price of the share did not fall below the introduction price. And on the other side, high-frequency traders tri to sell the share en masse with a margin of a few dollar cents.
Humans were not involv in this. It was the algorithms of computer programs that regulat the buying and selling process.
In the article ‘ Lies, Damn Lies and Twitter Bots ‘ futurist Jamais Cascio pricts a scenario where misinformation ukraine business directory crashes the stock market:
“Algorithmic trading, particularly high-frequency trading, is extremely vulnerable to disruption; as it becomes more that is far from enough when you w deeply connect to rapid news inputs from Twitter, the potential increases for misinformation flows to trigger flash crashes and stock price drops.”