Friday 7 May 2010

What's the difference between a million and a billion?

So while our local bourse was asleep last night, the global stock markets were in turmoil. Evidently the course of this sudden 10% fall in the Dow (which had people momentarily thinking that we had finally reached the second great depression) was that someone at Citibank erroneously put in a sale order for a billion Procter and Gambles instead of a million. Eish!



Now these days a lot of trading is automated. Particularly on big levered trades, the broker can program a stoploss into a computer which basically gets the computer to sell if the price falls to far (so as to limit losses). This little trade managed to breach those stop loss levels, compounding the sell off.

And then you also get lots of clever people looking at straight lines on the Dow graph. They saw the jagged blue line cross their straight red line and used all their scientific intuition to sell the whole market.

It's because of the quality of these great minds that the equities industry pays such inflated salaries.

5 comments:

Dr Phil said...

that's funny. how much did P&G lose?

Paul said...

Apparantly 37% almost instantaneously.

Alex said...

What a fuck up! Not sure it was just caused by one persons typing error. The Dow lost more on Thursday night than it did after 9/11....

Greg said...

I understand how something like this could make the markets spiral out of control, but doesn't anyone check these things? Doesn't a trade that's over a certain value need to pass through multiple gates and checks? Maybe that's just a silly engineering industry requirement.

Paul said...

The markets will always be a couple of steps ahead of the regulators.