Large banks, hedge funds, and institutional investors use algorithmic trading routinely, regardless of whether we’re in a bull or bear market. However, when triggered by news events, such as the current COVID-19 coronavirus outbreak, or financial rules, computer-driven trading algorithms can exacerbate stock market sell-offs.
Amid the global spread of the deadly China coronavirus, stock markets plunged on March 9. In the U.S., the broad sell-off triggered circuit breakers that halted marketwide trading for the first time in 12 years…
Volatility-based circuit breakers again were tripped on March 12. The World Health Organization a day earlier declared the coronavirus a global pandemic.
Algorithmic trading also has been associated with stock market volatility and triggering sell orders. One example: the “flash crash” of May 2010, which wiped $860 billion from U.S. stock markets in less than 30 minutes.
MacDailyNews Take: Automated alternating panic and euphoria. What could go wrong?