The use of computers by some stock market investors has created a procedure called stop loss selling which could threaten the stability of national and even world markets.
The owners of securities instruct brokers to program their computers with a price for each security. If the securities fall below that price, they are sold to cut the owners losses.
Even on the most automated exchanges, the process is not yet entirely automatic; the broker still has to speak to the market maker to carry out a major trades. But as computer to computer systems emerge, the financial world could face a computer led crash. A slight downturn in the stock market would trigger off a few stop loss sales, causing a further downturn, which would then set off others, and so on.
The domino effect is no different from what has happened in all stock market crashes, as people sell to preserve some of their money. But computers could make it happen faster- almost literally – overnight making it more difficult to control and sending the crash to greater depths.
Picture Credit : Google