Another Eff-Up In The World Of Finance (Knight Trading)

[jyl]

Hear this one?

Knight, a major trading house, rushed new algorithmic trading software into production. On the morning of the first day, Knight's computers start spitting out huge volumes of unintended trades. Trading volume spikes on the exchanges. Circuit breakers don't kick in as those are price-based, not volume-based.

SEC and/or NYSE identifies Knight as the source of the flood of trades, and notifies Knight, within minutes. For some reason, Knight is unable to turn off its computers until a half hour later. During which time the out-of-control computer trading is disrupting the market. Fortunately, other automated high-frequency trading programs appear, on the whole, to have bet against the Knight trades rather than chasing the momentum of those trades, thus avoiding another market-wide "flash crash" event.

In the 40 minutes or so that the new software is in action, the firm accumulates $440MM in trading losses. That exceeds its available capital $365MM, and its annual profit. Knight is now surviving on day-to-day credit and is trying to find a buyer.

Knight Capital Says Trading Glitch Cost It $440 Million - NYTimes.com

Trying to Be Nimble, Knight Capital Stumbles - NYTimes.com

Trading Program Ran Amok, With No 'Off' Switch - NYTimes.com

Knight Capital Gets a Lifeline - WSJ.com

[RWebb]

who wrote the software?

[craigster59]

Better living through technology.

[sc_rufctr]

Oh... So stupid. Lols...

[Hugh R]

Skynet is here.

[stomachmonkey]

Originally Posted by RWebb

who wrote the software?

Don't think you'll find it on the resume they are currently writing.

[911_Dude]

Another major fail. Ive traded stocks and options for years. But I really feel like its all stacked against the small investor these days with the high speed trading, the Libor issue, Enron, the list goes on forever. Not that there is not money to be made for the small investor. But its not a level market. Those at the top of the trading food chain are only in it for themselves. I think the outrage over the Facebook IPO flop is hilarious.

[Zeke]

Trading has ruined investing and it's all scandalous.

[intakexhaust]

Nutz. No trial sims beforehand or what ifs?
Other: Facesmack and Zuckerberg... just beautiful.

[jyl]

Professional stock traders are doing a whole world of things that has nothing much in common with "investing" as the traditional long term investor thinks of it.

Market and sector bets via ETFs, arbitraging pair trades, options strategies, short term technical trading, catalyst driven bets, quantitative strategies, benchmark-relative investing, etc.

That is, in general, perfectly fine - I think. After all, it is interesting, fun, and keeps lots of people gainfully employed, including yours truly.

When this stuff starts interfering with the long term investing and capital raising function of the stock market, then there is a problem.

I think it is (interfering).

[rsNINESOOPER]

Ha Ha............Karma

[Zeke]

Originally Posted by jyl

Professional stock traders are doing a whole world of things that has nothing much in common with "investing" as the traditional long term investor thinks of it.

Market and sector bets via ETFs, arbitraging pair trades, options strategies, short term technical trading, catalyst driven bets, quantitative strategies, benchmark-relative investing, etc.

That is, in general, perfectly fine - I think. After all, it is interesting, fun, and keeps lots of people gainfully employed, including yours truly.

When this stuff starts interfering with the long term investing and capital raising function of the stock market, then there is a problem.

I think it is (interfering).

I think it is when you consider that program trading sucks out some of the profit otherwise available to longer terms. I'd have a tough time proving that, so....