Algorithmic trading causing market volatility from "summary" of Automate This by Christopher Steiner
Algorithmic trading has been a game-changer in the world of finance. By using complex algorithms and high-speed computers, traders can execute trades in a fraction of a second, often faster than the blink of an eye. This has led to a dramatic increase in trading volume and liquidity in the markets. However, it has also introduced a new level of complexity and risk.
One of the key drawbacks of algorithmic trading is its potential to cause market volatility. When algorithms are programmed to react to certain market conditions, they can amplify small fluctuations in price. This can create a feedback loop where the market becomes increasingly volatile as algorithms react to each other's actions.
For example, if a ...
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