FT’s Gillian Tett observes –
“Orders are being
executed at lightning speeds in huge volumes. But there is another, often
overlooked implication: these machines are being programmed to link numerous
market segments together into trading strategies. So when computer programs
cannot buy or sell assets in one segment of the market, they will rush into
another, hunting for liquidity.
Since their
algorithms are often similar (or created by computer scientists with the same
training) this pattern tends to create a “herding” effect. If a circuit breaks
in one market segment, it can ripple across the system faster than the human
mind can process. This is a world prone to computer stampedes.”