With a computer sell order, a single trader caused the huge “flash crash” that made the Dow Jones Industrial Average plummet 1,000 points on May 6, according to a report by the Securities and Exchange Commission. Waddell & Reed, though not named in the report, made the only trade that matched the $1.4 billion trade described by the SEC. That selloff spooked many major players into withdrawing their money from the stock market. Thanks to a computer algorithm, 75,000 contracts were sold in 20 minutes, sending the E-Mini S&P 500 down 3 percent in a mere four minutes. The incident highlighted the dangers of securities markets as electronic trading platforms begin to rival traditional ones. Using mathematical formulas, computers make lightning-fast trades for “high-frequency” traders, so errors can quickly reverberate through markets.
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