Yesterday I alluded to the electronic trading debacle that pretty much wiped out Knight Capital last week. Here’s a more technical analysis of what probably happened from the boys at Nanex. It’s only a theory (Knight will likely never say what really happened), but it’s well supported by the public data.
Non-technical summary: someone at Knight mistakenly pointed a test application at the live market, an application specifically designed to 1) issue lots of orders, 2) not care if it was losing or making money, 3) not report what it was doing because it was only a test app. It’s a good way to burn $440MM in under an hour.
BTW, if any of you have any questions about how electronic trading works, hit my ask. I’m pretty good at explaining in non-technical terms. (I’ve been explaining this stuff to senior managers for a dozen years and they are mostly dumb as dirt.)
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scholvin likes this
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tolerablescamp reblogged this from scholvin and added:
Great, understandable explanation of what went on at Knight with technical links.
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d-na likes this
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ashamedtosay said:
FUCK! Wow. So, like War Games but with actual MONEY.
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penbleth likes this
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sblaufuss said:
Oh man! We had a group of developers aim their app at the wrong servers one time at work which caused the Nat’l. Weather Service to issue a tsunami warning to Little Rock, Arkansas. The sirens went off and everything.
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scholvin posted this
