Computer trading in the stock exchange market has come to replace floor trading which is much slower. Orders are currently being processed much faster and the system is deemed to be more efficient. This system is observed to respond in milliseconds as compared to a slower rate if it were handled by humans. The system now accounts for about 50-70 percent of trading volumes. However, there have been concerns by stock market traders of errors posed by computer trading especially fostered by the high volume of trading. There are several errors that are observed in the market today due to the use of this more recent trading method.
Many companies have computer programs that automatically sell and buy stocks in the market. These programming actions are induced by a note in drop or rise in prices. An unexplained surge in selling and buying has been noted when stock prices fall or shoot. This is because all computer programs respond to the change in prices and place orders to buy or sell. When there are too many selling orders placed in the market, this will have an effect on the overall price because the prices are projected to fall further when there is an oversupply of shares. The situation is further compounded when there isn’t enough demand to cope with it.
Sometimes in Chicago, there were huge anomalies and surge in trading based on computer algorithms that eventually spilled out of control and rippled across indexes. A further cascading effect is noted on other programs when prices are further pushed down due to oversupply. This happens when other computer programs only identify the rate from the artificially instigated price due to oversupply. This happens when say the rates were down 4% and oversupply pushed it down to a further 5%, other computer programs would place orders from 5%.
Recent developments in the stock market have noticed a sharp fall in share prices due to algorithmic errors observed in computer trading. The effects are only compounded by the high number of trading volumes associated with computer trading. A small error like typing a “b” for billion instead of an “m” for million could send stock share prices tumbling. This type of error has a consequence that is affected within seconds across the market and may be very difficult to reverse.
For instance, a trader created a huge fall in share prices of the S&P 500 when he was trying to sell 16,000,000 shares involving Proctor & Gamble by typing a “b” for billion instead of “m” for million. This created a sense of panic in the market and created a loss in liquidity. Due to this case, the stocks fell by a very big margin compared to the previous day’s sales. However, by the close of the market, the stocks rose again to almost measure up to the previous day’s sales.
The ability of the computer to relay a company’s information within milliseconds might raise ethical concerns when other companies use this information to create a competitive edge. However, such problems highlighted in this article should be reported to the relevant authorities for further analysis and derivation of proper protection against such errors. This would probably work if a body in the stock market is set up to monitor anomalies in trading and stop orders immediately.