Knight Capital Demonstrates How Robots Rule the Trading World
Knight Capital (NYSE:KCG) called it a glitch, though most glitches don’t cost $400 million and ultimately drive a company to the point of insolvency. The shock, however, isn’t so much the “what” but the “how.”
How did Knight Capital lose $400 million — about a third of the company’s market cap at the time — in just a few hours?
An algorithm that initiated pre-determined, event-based trades had been left turned on when it should have been deleted from the company’s trading program. It’s a scary reminder (and evidence?) that much of the market’s movement is completely unmonitored by human eyes until it’s too late to stop the chain reaction.