This story puts the lie to a couple of canards about HFT:
- "It's risk free." Any time you put headless trading code into the market you are risking a catastrophic loss. That risk can be managed to a degree with many layers of programmatic safeties, and other practices like having your operations people look for warning emails the day after you've deployed new code. But the risk is always present.
- "It makes the market more unstable." The most important market-maker in U.S. equities blew itself up in spectacular fashion and had to remove itself from the trading entirely. Sending unaccounted orders into the market in an endless loop is about the worst mistake an algorithmic trading firm can make. Can anyone pick the day this happened out of a long-term chart of the S&P 500?
- "It's risk free." Any time you put headless trading code into the market you are risking a catastrophic loss. That risk can be managed to a degree with many layers of programmatic safeties, and other practices like having your operations people look for warning emails the day after you've deployed new code. But the risk is always present.
- "It makes the market more unstable." The most important market-maker in U.S. equities blew itself up in spectacular fashion and had to remove itself from the trading entirely. Sending unaccounted orders into the market in an endless loop is about the worst mistake an algorithmic trading firm can make. Can anyone pick the day this happened out of a long-term chart of the S&P 500?