Our decisions "can only be taken as the result of animal spirits- a spontaneous urge to action over inaction," said John Maynard Keynes, but nowadays the bears and bulls of the NYSE trading floor are being replaced by servers and trading is often governed by algorithms. Well, isn't this the natural progression, you might ask.
The point is a valid one. In 1969, the American Stock Exchange found that errors in handwritten securities orders cost brokerage houses around $100 million. To put that in perspective, that same year Woodstock cost organizers $2.6 million. Point to computers.
On the other hand, questions have been raised about the way computers read the data they process so quickly. On April 23, 2013, a fake tweet from AP claiming the US President was injured removed $136 billion from the S&P 500 index in two minutes, although the market did recover by the end of the day.
On the other hand, questions have been raised about the way computers read the data they process so quickly. On April 23, 2013, a fake tweet from AP claiming the US President was injured removed $136 billion from the S&P 500 index in two minutes, although the market did recover by the end of the day.
In 2008, a six-year old Chicago Tribune article about United Airlines' 2002 bankruptcy was mistakenly included with the daily news on the financial news site, Bloomberg. The error resulted in a drop in stock price from $12.30 to $3.00.
Algorithms process unbelievable amounts of data quickly and spit out the results we built them for. These events highlight an important concept in computer science, "garbage in, garbage out." This blog will provide access to the dialogue about algorithmic trading, including Michael Lewis' Flash Boys and Scott Patterson's Dark Pools, in order to produce a more informed investor. Quality in, quality out.
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