Ultrafast Trades Trigger Market Crashes and Spikes
The US financial markets have suffered over 18,000 extreme price changes caused by ultrafast trading, according to a new study of market data between 2006 and 2011.
This kind of trading appears to generate emergent behavior that has nothing to do with the actual value of a company. Instead, these events are unavoidable properties of the system itself. That raises an important question: how can authorities prevent flash crashes and price spikes in which billions of dollars can be won and lost? The answer is that nobody knows, not least because econophysicists do not yet understand the nature of flash crashes nor how they emerge in complex systems.