Knight Trading Losses Attributed To Old, Dormant Software

New submitter alexander_686 points out a Bloomberg article about the cause of Knight Capital Group's $440 million algorithmic trading disaster from a couple weeks ago. The report says a dormant software system was accidentally activated on August 1, which immediately began increasing stock trade volumes by a factor of 1,000. The Wall Street Journal has further details: "Knight Capital Group Inc.'s accidental trades earlier this month were triggered by a flawed upgrade of trading software that caused an older trading system connected to the computer code to inadvertently go 'live' on the market, according to people familiar with the matter. The errors at Knight on Aug. 1 involved new code the Jersey City, N.J.-based brokerage designed to take advantage of the launch of a New York Stock Exchange trading program, which was introduced that day to attract more retail-trading business to the Big Board, the people say. ... When NYSE Euronext trading floor officials called Knight at about 9:35 a.m. to try to pinpoint the cause of unusual swings in dozens of stocks, just after the Big Board opened for trading, Knight traders and their supervisors had a difficult time detecting where in its systems the problem was located, say people familiar with the morning's events. The NYSE had to call Knight several times before deciding to shut the firm off, the people say."

Comments

Re:The NYSE shouldn't reverse trades.

[trout007]

I use a method by the late great Harry Browne he called failsafe investing.

Here is the summary. Divide your investment into quarters.
25% S&P 500 stocks
25% 30 year Treasury Bonds
25% 100% Treasury Money Market (If you can find one. They pretty much all went under after they put FDIC on money markets)
25% Gold Bullion Coins

As you save add your funds to the Cash (Money Market) portion.
Every once in a while check the balances. If any gets above 35% or below 15% of your total portfolio re-balance it to 25%.

The beauty of it is that when anything bad happens it is usually people running from one of these to another. This allows you to automatically buy low and sell high.

I've averaged about 12% per year for the last 10 years. You don't get as good of a return long term as the S&P 500 but it's also less scary.