This is part III of a 4-part series about High Frequency Trading (HFT). In Part I, the use of computers to quickly identify and execute trades was discussed. In part II, access to data is discussed. In part III, the role of HFT in flash crashes is talked about.
The flash crash that occurred on May 6, 2010 was the largest single-day point swing and biggest one-day decline for the Dow in its history. There are still debates today as to how it started – a fat-finger error that sent Procter & Gamble’s stock down, a large sell order in the S&P 500 E-mini contract are two popular culprits – but since HFT is hated by some many, especially lay people who know nothing about Wall St., HFT has received the bulk of the blame for exaggerating the movement.
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