The big story of the day is the dramatic fall of Dow Jones which shed about a 1,000 points before recovering, and closing just 347 points down. The WSJ has this on the subject (emphasis mine):
At its afternoon low the Dow Jones Industrial Average was down almost 1,000 points, hurt by sharp drops in Procter & Gamble, 3M and other companies that traders said were subject to heavy selling by so-called black boxes, or automated trading systems.
U.S. stocks plummeted on Thursday afternoon in a furious selloff accelerated by automated orders and possible erroneous trades.
Several market watchers said they heard a major firm may have accidentally released an errant program, where a trader accidentally placed an order to sell $16 billion, instead of $16 million, worth of e-minis, the futures contracts tied to equity indexes.
I had no idea such a thing was even possible. I hope we get to know the real reasons behind this because drops like these are quite scary, and even more, if human errors and computer programs cause them.
4 thoughts on “Dow Jones falls about a 1000 points”
Stock trading is a manipulated game and it require a great deal of faith to believe that there are 16 Billion dollar accidents. There are predictable winners and losers when such an event occurs. Why do I get the feeling that some players are willing to crash the market to achieve personal gain?
What if the future is based solely on technical matters and computer programs than any human emotion or involvement?
In theory, only sound companies would see their stock go up, but then if everyone was trying to buy the same companies and a computer program convinced you that company X was either to over/under valued you end up with gridlock.
In all reality, individual investors don’t matter, it’s the big mutual and hedge funds that control the market. If they bought Company Y at $25 a share to establish their 2% stake and the stock goes up in value to $50 they have to sell shares or bring in millions more of capital so as to not go over the 2% threshold. So even if the manager of the fund still really likes Company Y they are forced to start selling, which can either be a blessing for individual investors or a hidden trap that will eventually lead to your demise.
Aye, we need a closer monitoring system on these computer programs. If memory serves me correctly, this happened at least once before, although not a dramatic sell-off like this one but it happened briefly enough to warrant a mention in the news somewhere.
Welcome to the future.
As much as I don’t want even more regulation and bureaucrats getting involved in the financial market there are times when something needs to be done before this entire system comes crashing down around us.
If a computer program can set off an entire chain reaction of automated selling it can very easily be taken advantage of by short sellers. Confidence is one of the key things that keeps people invested in the market, if people lose confidence and start pulling their money out of the market, it could be game over.