

Origin of Wall Street’s Plunge Continues to Elude Officials - jfi
http://www.nytimes.com/2010/05/08/business/08trading.html?th&emc=th

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ct4ul4u
As somebody who used to work in Program Trading, I suspect that unanticipated
side effects of Reg NMS amplified already substantial market movements. The
regulation, designed to prevent trade-through, has the effect of creating a
submarket for those interested in fast execution at any cost. This submarket
is very light on liquidity.

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watmough
It seems conceivable that everything functioned exactly as it was designed.

As the Yen spiked, holders of much borrowed USD needed to liquidate and pay
back their borrowings, and program selling snowballed across very very thin
markets.

Several 'liquidity providers' including TradeBot withdrew liquidity in the
plunge, perhaps leading to the 0.00 and 0.01 bids that applied to quite a few
stocks.

We have a very poorly regulated system, with few safeguards for regular
investors. Sure, the spreads are generally tighter than the old days of floor
trading, but the secret dark markets and computer trading can be turned on and
off at will, leading to the kind of thing we saw Thursday.

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ggruschow
You seem to be under the erroneous assumption that human specialists and
market makers actually caught falling knives in the past. Sure the rulebooks
said they were supposed to, but rules aren't reality.

Black Monday is the classic example. Lots of phones were ringing and simply
not getting picked up because they didn't want to deal with the orders. That's
even worse than today. Unless you were on the right trading floors, you
couldn't know what was happening and you couldn't cancel or enter new orders.

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Keyframe
Someone called it a "display of digital nukes". Here is a quick chart I did on
spot market EURJPY which is a proxy barometer for equity markets (it is
corelated, like copper price is for world economic growth):
<http://i.imgur.com/E6MK2.png> massive inverse cup and handle on a daily
chart. So it is by TA, straight from a textbook. Movement was rather dramatic
though, and still more to come after a bit of consolidation (from a week to
about end of the summer at most).

~~~
jrockway
But you have to keep in mind, the market is specifically afraid of the Euro
collapsing, so it might not indicate anything _today_ other than the fact that
people would rather have JPY than EUR.

~~~
Keyframe
EUR/JPY is a known gauge of market sentiment, same as copper is for economic
growth. Markets go up, EURJPY goes up, markets go down, EURJPY goes down. It's
a known correlation that hasn't been broken yet. Intramarket analysis is a
widely popular field in the economics. Just because people are afraid it
doesn't mean it won't happen. Every possible TA is indicating on further
collapse to come this year, at most by the end of summer. Even Elliot Wave
suggests it if you are into EW. Even fundamentals are all wrong, carry unwind
just happened, dollar is surging because of the credit market collapsing, vix
is going mad, ecb is incompetent/inert. ECB will try to do something, tomorrow
I'm sure - but it's a bit too little too late. Avalanche had its first run
this week. We'll see a period of consolidation for a week, to up to a summers
end if we are lucky! People can downvote my first post, but they cannot ignore
that chart and should not.

~~~
jrockway
"Past performance is not indicative of future returns."

A large country in the Eurozone has not defaulted on its debt before. This
default affects the price of the Euro. You can't just look at a graph and
assume that it's always right.

The Euro isn't even old enough to make claims like "always", anyway. It's only
been on the market since 1999 and only in circulation since 2002.

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jackfoxy
Some say don't rule out sabotage
[http://thehill.com/homenews/administration/96713-white-
house...](http://thehill.com/homenews/administration/96713-white-house-doesnt-
rule-out-sabotage-in-market-fluctuation) The article doesn't provide a quote
using that word, but this isn't the kind of media outlet that would typically
make up something so inflamatory.

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dmn001
My naive guess is automatic stops. If you enter a position electronically, you
set stop losses for the low barrier. If it falls below that, the stops will
trigger, selling off the stock, lowering the price, and causing other stocks
to do the same creating a domino effect.

~~~
jrockway
But there are people on the other side of the equation, too, with orders to
buy when the price reaches a certain number. And there are the options
traders.

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gokhan
Yeah. It was interesting. It's still unknown. Most of the trades canceled.
Some people made big bucks / losses (up to 60%).

Can we please move along?

~~~
InclinedPlane
Part of the stock market just core dumped, resulting in a significant one day
loss for a lot of very big stocks.

I'd advice against resolving this bug, whether a "workaround" exists or not,
until we actually understand it.

~~~
jfi
resulted in _the_ most significant intraday drop _ever_ \- this is worth
spending some time looking into and understanding what happened

