What can we waste money on now?
Things are looking up, there is some hope for the future. The weather seems better and the bloody Olympics is nearly finished! I’m sure that the powers that be will come up with something to waste the nations money on now all the usual summer jollies are over. I read somewhere that David Cameron wants to turn Britain into a tax haven. If we didn’t have tax havens there wouldn’t be a world economic crisis mate! Instead of squirrelling money away in secret Swiss bank accounts, try investing it in the country you were bloody born into.
Still on the subject of money and investing, the New York Stock Exchange launched a new electronic trading platform. Stock could be traded by computers in the blink of an eye. A company called Knight Capital decided to take advantage of this and used a computer program to trade with the intention of using high frequency trading to make money by speculating. The idea is to buy stock and if the price goes up, sell at a profit. Buy low, sell high! It went slightly wrong and the computer was buying high and selling low. This could have been a ‘stop-loss’ idea that went wrong. They were losing $10 million dollars a minute and unfortunately there wasn’t an automatic stop computer option built into the program. By the time they did stop it, they had lost $440 million. Ouch!
This isn’t the isolated incident it appears. Computers regularly trade and they don’t always buy low and sell high. Stop loss orders are automatically executed. Let us say a stock is priced at 100, the computer has a stop loss at 90 and a sell and make a profit at 120. It will do trades like that constantly and can make trade at close on a million a minute. It’s an automated profit making machine in theory, but there are lots of other computers doing the same thing. A share goes to 90 and computers all over the place go “sell, sell, sell” in a frenzy and the price drops to 70 and computer that bought at 80 go “sell, sell, sell” and some computers that bought at 100 are “buy, buy, buy”. It does make for volatility. Don’t you think? It means big swings in prices and add a bit of human error and the markets are in turmoil. Some agency downgrades a company and that is fed into the system too and the price of that stock crashes with what would be a sort of computerised panic.
This is speculation and exploitation and so bound to go wrong. There will always be speculation, it helps to stabilise prices normally, but it’s open to fixing as we saw in the LIBOR scandal. The answer to that dilemma is to stop fixing interest rates and let the market decide, but the market appears to be corrupt.
My Sunday ramble is a bit heavy this week. I’m hoping to do my supermarket shopping before lunch. I usually write this as it’s cooking, but I have plans for an afternoon out so I’m pressing on. I’ve been typing so fast this morning that smoke has been coming off the keyboard. I’m hoping for an afternoon out taking photographs. I have a few places in mind, but the weather looks a little dull for photography. Petrol prices have gone up again and so I won’t travel far unless I can get good pictures. I had plans to venture into foreign territory today. That term foreign territory is quite old and comes from when the Lord of the Manor banned the grazing of cows and sheep on common land on his manor, if they were from outside the manor or from ‘foreign territory’.
- The $440m computer glitch (bbc.co.uk)
- Why Knight lost $440 million in 45 minutes (finance.fortune.cnn.com)
- A Common-Sense View of the Stock Market (wealthwire.com)
- N.Y.S.E. Halts Some Trades After Unusual Volume (nytimes.com)
- Skimming Operation (theburningplatform.com)
- Guest Post: A Common-Sense View Of The Stock Market (zerohedge.com)
- A Few Things That Average Joes Should Understand About The Stock Market (investmentwatchblog.com)
- How The Stock Market Became A War Zone (buzzfeed.com)