Editor's Pick | What is Algorithmic Trading?

Episode 782,  Jan 10, 2019, 03:59 PM

Of late, the stock market in the US has seen swings so wild, you could mistake it for Tarzan. Any tumultuous time such as we have seen on Wall Street inevitably comes with the Greek chorus of blame. Big investors come out and start blaming algorithms. The story is usually the same. As Business Insider summarized it, and we paraphrase here, electronic trading programs feed off each other to cause an “invisible herding effect” which amplifies price moves, able to turn a minor downward trajectory into a major bloodbath, all in time it takes for you to blink an eye. This “herding effect” is one that is associated with human behavior, but it turns out, some researchers have attempted to explain even stock market behavior using the herding effect.