All I am hearing about the flash crash is how bad it is and what a threat to the system it is but for the most part, its just overreaction by those who forget market history and the way it has always been.
We have been hearing about the threat since the May 2010 flash crash and for sure, there are serious issues around high frequency trading and social media that require a measured magnifying glass and market participants’ risk management considerations.
I am not making light of it here but the reports are everywhere, overstated and distorted from reality – the scarier the better I suppose.
I don’t see anything here that is as destabilizing or historically out of the ordinary as most reports would have you believe.
Recall the initial response to 09/11 after the first plane hit. Mark Haines was reporting that it was a light plane and neither tower was immediately evacuated.
Over 100 years ago, JP Morgan manipulated US markets more with his pinky finger than HFT or Twitter hackers ever have.
The market is not broken and if it is, then it has always been broken.
Yesterday, Marketwatch quoted me,
In a way, that’s a really healthy thing: The dissemination that it was a hoax went out just as quickly, and the latency was very, very brief… People are not focusing on the resiliency of the market and the self-corrective aspects of social media.
No one is focusing on this – that the market snapped right back as reports were refuted and that refutation spread just as quickly as the false rumor did.
Markets have always been imperfect and manipulated and as long as humans are involved, whether or not they are wielding super fast computers or malicious password cracking software, they always will be.
That’s the playing field so if you are managing risk then plan accordingly.