Since 2006, the faster-than-human stock market has hidden 18,000 spikes and crashes

BY newsdesk  September 17, 2013 at 2:28 PM EDT

Highspeed, online trading happens so fast that we, mere humans, can’t keep up with what’s going on — and there’s a lot that’s been going on. That’s what a group of scientists concluded after researching the complex systems behind market trading, announcing that the same type of volatility demonstrated in the “flash crash” of 2010 — when markets lost nearly 10 percent of their value in minutes — is going on all the time, completely out of sight.

These guys, the Quartz article says, don’t stand a chance. Photo by Andrew Burton/Getty Images

The researchers have apparently stumbled upon a new form of ‘machine ecology’ that creates ‘ultrafast extreme events’ — UEEs — that happen faster than people can respond. A trading algorithm can cause spikes and crashes in prices and then rebound back to normal in the tenths and hundredths of a second, all before returning to human-time market prices. Market regulators, however, aren’t keeping track of these UEEs, Tim Fernholz wrote in Quartz. “That’s a problem, not just because of any potential forewarning, but also because trading at that speed creates volatility that makes markets less efficient.”

“Down in the sub-second regime, they are the only game in town,” University of Miami Physics Professor Neil Johnson, who led the study, says. “Are these 18,000 lucky breaks for one of the algorithms or 18,000 examples of a new form of inside trading? In terms of the information availability, it’s really hard to tell. It’s sort of strange to have that going on and have nobody know.”

Economics correspondent Paul Solman explained the intricacies of highspeed trading in this 2012 interview with novelist Robert Harris:


So is anything being done about these highspeed trades? There have been investigations into the early data releases on which fast trades feed (more about which you can read in our high-frequency trading primer). And just last week, Caring to Change director Mark Rosenman proposed on the Business Desk a financial transaction tax that would, in part, curb the practice.

H/T Elizabeth Shell