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The Dow Jones had a wild ride on Thursday , dropping almost 1,000 points before pop to tease back . Although human misplay have the cliff , it exposed problems in a computer programme that was used to make a trade wind , and in the entire electronic computer trading system of rules at large .
The drop began when a Citigroup employee accidentally mistyped the size of a trade involving Procter and Gamble stock , say Joel Hasbrouck , a finance prof at New York University ’s Stern Business School . Of naturally , typos like that have always been a part ofstock trading , but a single mistake has never affected the market as deeply as yesterday ’s botch . Normally , people grab these errors rather speedily , but in today ’s age of automated trading , computers began reacting to the misprint and making trades based on it before anyone realized it was a fault , Hasbrouck sound out .
" A cost movement like that can be started byjust about anything , but it understandably spread out to more than Procter and Gamble , Hasbrouck tell apart Life ’s Little Mysteries . It had ripple effects understandably expanding beyond that narrow error . "
Whenever there are large changes in the market fall out quickly , monger should call for ' why ? ' " say Hasbrouck .
But it was not just the speed of computer reactions to the error that do the Dow ’s plunge . The intelligence of the electronic computer program that made the Procter and Gamble craft also seems to be at fault , said Albert Kyle , a prof of finance at the University of Maryland and a member of Nasdaq ’s economic consultive board .
Typically , trading programs have a number of failsafe mechanism that greet misunderstanding like the one that occurred yesterday , Kyle said . Obviously , those failsafe measures did not realize the fault yesterday .
The problem yesterday is that there was a lack of checks and correspondence built into the computer system , likely at multiple level , Kyle told Life ’s Little Mysteries .
However , both Kyle and Hasbrouck agreed that , by and large , computers are the solution to , not the cause of these sort of problems .
There are more mistakes made with human trading . A good estimate is 5 percentage of all trades are mistakes with human trading , Kyle said . Computers solve a immense number of problems , and make things far less error prostrate . Even when you have an error in a computing machine dominated market , it ’s normally a human computer error .
The computer error rate for electronic computer is less than 1 percent , Kyle said .
To prevent this from happeningin the future , the stock exchanges should institute tighter controls on the flow of the market , Kyle and Hasbrouck suppose . On the Tokyo Stock Exchange , for object lesson , trading halts for five minutes any time there is a swing as massive as the one on Thursday . That break give the traders a luck to cool down and see if there is a problem . They can define if there was a error or if the swing was a logical market move . Thus , they seek to guarantee that monger do n’t react with panic .
