Automated trading causing flash crashes from "summary" of Automate This by Christopher Steiner
Automated trading algorithms have transformed the financial markets into a high-speed battlefield where milliseconds can make the difference between profit and loss. These algorithms are designed to execute trades at lightning-fast speeds, reacting to market conditions in ways that human traders simply cannot match. However, the quest for speed and efficiency has also introduced a new level of risk into the system. One of the most alarming consequences of automated trading is the phenomenon known as a flash crash. These are sudden and severe plunges in asset prices that can happen in a matter of minutes, or even seconds. These crashes are often triggered by a cascade of automated sell orders that feed off each other, creating a feedback loop that drives prices down rapidly. The problem with automated trading is that it can amplify market movements to an extreme degree. When algorithms detect a sudden drop in prices, they are programmed to react by selling off assets to limit...
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