It's Friday Night! Party Time! Time to relax, put your feet up on the couch, lay back, and watch some detailed videos on economic policy! Tonight's documentary is Money & Speed: Inside the Black Box. It is a nanosecond by nanosecond account of the May 6th, 2010 flash crash, the most famous of sudden jolts to the markets due to automated computerized trading. This is a great hands on explanation of high frequency trading systems and how one wild trade can put the entire global system at risk. Trades are pushing up to the speed of light while the overall system is designed to operate in seconds, not billions of a second.
We overviewed a Chicago Fed paper analyzing high frequency trading that is a must read and we have other articles on high frequency trading here. High Frequency trades really have not stopped and vulnerabilities in the system are still present. There have been other flash crashes since May 6th, 2010.