More than a stock tip:

Gaucho

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Now let's address the blip down.

When someone hits market with a big order, they take out all bids at the front of the order book. After this, the order book is not populated with much depth. Hence, once it sweeps through the front, it may have to travel 100 ticks just to hit a 2 lot, before moving on and taking out all the rest of the thin liquidity. At a point, volume is going to come in because it has gone way too far and send it back the other way sharply (generally a statistical arbitrage bot). The close of the night was only where price was before the error.

At the same time, bots and prop traders are going to quickly go long 'risk off' plays such as the yen. Market makers will pull their books because their models no longer work due to the misfiring of all the algo bots that go off on such an error. And you get a global mess. It's simply a global system of which one giant fark up can create a mess amongst traders and other algos.

Mistakes like this happen, in the Australian market, it happened towards the end of 2008 when liquidity was thin approaching Christmas and orders were 'busted', otherwise known as cancelled' outside a certain range which is already pre-determined in exchange law (same as orders on NASDAQ stocks were busted this time, it is basically a poor version of the 'limit up or limit down' law). Only difference is this was in the the S&P so it affected the global markets, but mistakes like this have happened before and no, it's not a conspiracy.
 

Mr.Positive

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Gaucho said:
Mistakes like this happen.....but mistakes like this have happened before and no, it's not a conspiracy.
So, a mistake dropped the dow 1000 points in a matter of minutes. Let's think about that...

Honestly, if that was true...I would sell every ****ing stock I own. There's no way anyone would put a dime into a market where a wrong button pushed... could collapse the market to that magnitude.

What if the guy pushed T for trillions? Would the dow have crashed down to 6000?

Do you trust, that they 'fixed' the glitch?
 

Gaucho

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Mr.Positive said:
So, a mistake dropped the dow 1000 points in a matter of minutes. Let's think about that...

Honestly, if that was true...I would sell every ****ing stock I own. There's no way anyone would put a dime into a market where a wrong button pushed... could collapse the market to that magnitude.

What if the guy pushed T for trillions? Would the dow have crashed down to 6000?

Do you trust, that they 'fixed' the glitch?
Mate, price ended up where it was before that blip down, so if you own a stock, you wouldn't have lost anything unless you had a stop triggered and if that was below the legal limits, the order would have been cancelled anyways and you would still own the position. At the same time, those who were short and had limit orders lower but still inside legal limits, would have been filled and covered at a nice price. Not only the 'insiders' can do this.

These things happen all the time, this was just on a much bigger magnitutde. What is so hard to believe about that? The blip was not the cause of the entire down move, only that tail which won't make a difference to your average stock owner.

Deusche Bank had a similar glitch just a few months back and lost millions inside legal limits, so none of the orders got cancelled. THEY (yes one of the apparent evil IB prop trading floors) took the entire loss on the chin!
 

Trader

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Mr.Positive said:
So, a mistake dropped the dow 1000 points in a matter of minutes. Let's think about that...



Mr. Positive, there is one key link you need to know about.

Proctor and Gamble is a Dow Jones Industrial Average component. So therefore, if you decide to sell billions worth of P&G stock in an instant, now you depress the value of the DJIA. This causes computer programs to automatically step in and sell the DJIA index futures since the true value of the DJIA is a lot lower.

In addition, this causes other programs to sell other indicies, as an automatic hedge - when things are bleak, you sell short to hedge yourself. But by selling short, you exacerbate the downfall.


Mr.Positive said:
Honestly, if that was true...I would sell every ****ing stock I own. There's no way anyone would put a dime into a market where a wrong button pushed... could collapse the market to that magnitude.

What if the guy pushed T for trillions? Would the dow have crashed down to 6000?

Do you trust, that they 'fixed' the glitch?
Yes, according to your example, the dow would have crashed to 6000 if someone pushed 'T' for trillions. But once the market realized there was no fundamentals behind it, the market would have popped back up close to its orignal value. And the fool who pressed 'T' would have cost his firm major jack.

Take a look at the value of P&G stock, it *bounced back* in 5 minutes because there was nothing to warrant that nasty fall in the stock.
 

Gaucho

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Trader said:
Mr.Positive said:
Proctor and Gamble is a Dow Jones Industrial Average component. So therefore, if you decide to sell billions worth of P&G stock in an instant, now you depress the value of the DJIA. This causes computer programs to automatically step in and sell the DJIA index futures since the true value of the DJIA is a lot lower.
Yes, bots would sell futures and buy stocks, simple cash/futs arbitrage.

At least someone around here understands how a market works without making all kinds of rediculous accusations to explain price movements! :)
 
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