Money & Speed: Inside A Black Box is a 50 minute documentary on the stock market crash of 2010. In this documentary you get the chance of experiencing what is happening inside the black box of a rapidly moving financial market. Ever heard of the dangers of an algorithmic collapse. Well, this documentary is going to reveal to you the power of dangers of algorithmic trading.
With just one click, an algorithmic trading system can dump millions of shares in the market startling the market and unleashing a chain reaction in which other algorithmic trading systems also start dumping their portfolios in the market.
At the hears of these algorithmic trading systems is the quants. Quants are maths geniuses who build these algorithmic trading systems. Watch this documentary Quants- The Alchemists of Wall Street and learn how these guys build their models and how these mathematical models are now controlling Wall Street. The stock market crash of 2010 is also known as the Flash Crash. There was a sudden deep dip in Dow Jones Index which rattled the market. Then the market regained its poise and recovered. But it was scary.
High frequency trading is changing the very nature of markets. Some argue that high frequency trading is dangerous and blame the recent stock market crashes on high frequency trading firms. On the other hand, there are people who argue that high frequency trading is good for the market. High frequency trading makes markets more efficient. By looking for short term inefficiencies and trying to trade them these algorithms remove those inefficiencies making market more efficient in the process. The recent decline in the spreads is the result of these high frequency trading algorithms as they constantly hunt for large spreads and try to profit from them.
In the end, I believe markets become more efficient as long as the there are the same rules for all the participants and there is no rigging in the market. If all the players have the same playing rules then the market will eventually become more efficient in the long run. Only when the rules are rigged markets crash.