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One Click Away…
Posted by: gurufocus (IP Logged)
Date: August 3, 2012 08:46AM
Is it me or have things changed a lot in the past few years. These days, everything seems to be only one click away. Buy new shoes, a book, book your dream vacation, buy or sell a stock, etc. It started off being a bit complicated but over time, everything got easier.
The GoodThese days, booking a nice hotel, an airplane ticket to anywhere in the world, buying and selling stock in your retirement account and so much more. Even just a few years ago, finding news or performing any of those actions required phone calls, going to see a booking agent and something even more.
The BadThese days, it seems like we are all one tweet or one email from a scandal, from losing our job. In terms of trading, we’ve talked about high frequency trading, about the flash crash and how extreme events seem to be occurring increasingly often. I guess part of it is a desire for these companies to increase profits by trading on margin, by taking additional risks, etc. But in terms of trading, the growing dominance of electronic trading has made it very difficult to avoid what seem like bigger and bigger mistakes. No matter if it’s a fat finger, a computer glitch or a trader making an error while entering a trade, the consequences keep becoming more important.
We unfortunately had another example this week. Knight Capital, one of the bigger US brokers and an extremely active player on US markets had a major glitch. It’s not easy to get details but the bottom line is that this error resulted in millions of shares being bought and sold incorrectly and ended up costing Knight over $400 millions…. JP Morgan might be able to sustain such losses (although being too big too fail has other less glamourous consequences) but Knight seems to be unable to manage.. just look at its stock over the past week:
We don’t know who made the error (yet) but we do know that one click, one small error has resulted in Knight Capital becoming almost worthless.. all in a matter of less than an hour! Thousands will lose their jobs, a leading financial company might collapse and it all happened with one click…
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