An amazing story has been developing over the last few days, after some wild share price swings on the NYSE on Wednesday, which in the end were due to problems with a new system being implemented by Knight Capital. The problems are said to have cost Knight Capital $440 million, who blamed it on a ‘technology issue’.
The problem seems to have been in a High Frequency Trading algorithm, which bought and sold shares at high frequency, with the aim of making a profit per trade, but actually made a small loss per trade. In one trade instance that’s not a lot, but at high frequency that can soon develop into a massive loss.
Whatever the exact cause, sounds like they should have done a lot more testing. (The stable door is open and the horse has well and truly bolted)