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Dow Drops 1000 – algos blamed (wrong!)

The Dow dropped 1,000 intraday today – and immediately calls were made that algo trading needs to be “carefully reviewed”. The problem is that the blame is being placed on a trading error – made by a human. And the markets quickly bounced back, thanks to … you guessed it, program trading.

So let’s see, a human enters a wrong trade, markets react, program trading kicks in because suddenly there are great deals available, the market pops back up.

Sounds like we should be “carefully review[ing]” human traders.

Additionally, if a CEP engine, such as Sybase’s Aleri Streaming Platform had been in place to perform some pre-trade checks on our unfortunate human trader (hey – we all make mistakes), perhaps this would not have happened in the first place – and yes – Sybase Aleri was developed primarily to speed up algo trading.

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3 Comments

  1. Fannie says:

    Agree, we just had a small talk about it in the internal training about Sybase IQ hold by Tom Lu. The stroy will be a great opening speech while meeting our prospectives.

  2. Tom Lu says:

    I think there would have been some “automated actions” triggered by Algo trading system by various companies, and part of those “actions” could have contributed to the further drop of the Dow, but it’s not “Algo Trading” or “Algo Trading Platform” to blame, Human beings would have made the same decisions, just not as quick.

    However, those who have bought at the bottom, to capitalized on this fast pricing movement are probably the algo traders as well.

    Now, more companies would need to beef up their Algorithms to consider these situations, hence more computation needed, more CEP engines needed.

  3. Neil – thanks for the clarification on this.

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