Investors vs. Crazy Robots

Tuesday, 11th May 2010 09:21 - by Robbie Burns

I really, really thought I had seen everything in the markets, but last Thursday had to be marked down as new. The Dow plunged a thousand points in a few minutes. Why? Although it was already down, there was no ‘new’ news to make that happen. No-one has appeared to own-up, but it does look like a ‘fat finger’ trade which caused it. Gossips say someone typed in ‘B’ for billions instead of ‘M’ for millions. If correct, I think it is very worrying that someone can simply type in a wrong trade. How can there not be something to stop this? This trade panicked the trading robots into immediately selling everything, causing some shares to go to zero. A bit like the film Terminator! Rise of the Machines!! What kind of market is that? That's not a market, it's some kind of weird Super-Casino and you're playing against crazy robots. As an Investor, I am absolutely shocked that because of this so many people would have had their ‘Stops’ taken out over there, making any falls instantly worse. In fact, it's not worrying…it’s downright unfair! Investors who had, probably rightly, been in a very solid and safe company such as Proctor and Gamble; suddenly found their investment half-gone because some half-wit made a mistake. It was a fat finger trade in P&G that apparently sparked the trouble. Also, it was exaggerated by what's called -High Frequency Trading’ - a computerised programme that can sell huge amounts of shares in a nano-second. The same kind of thing is happening in the UK too. There are computer programmes, robots and machines working against each other everywhere. Many traders over here who trade the FTSE got hit by the sudden plunge (which corrected itself quickly). The worst thing is for more illiquid stock traded electronically and with market makers. Panicked investors selling-up exaggerate the falls, which are then made worse by the robot sellers, and CFD traders. I think the fact robots, machines and crazy traders can screw up a market and make a share go to near zero for no reason at all is a total disgrace, and sheer daylight robbery. I read that a lot of trades were cancelled the next day - but this can't have stopped people making and losing money in an unfair way. I hope systems will be worked on here to ensure it doesn't happen again. In some automated traded shares, it just takes a sell of a couple of grand to drive down a price. An auto-trade sell of 50 grand could push it down 20% in a flash. It's not right and needs to be looked at urgently. If it isn't, Investors might decide enough is enough and give up putting their money in the markets for fear of losing their money... not from making mistakes, but being taken out by the equivalent of a crazy Arnie Schwarzenneger Terminator robot.