eldavojohn writes "Occurrences like May 6 plunge are causing some to doubt high frequency traders. Today, the Chicago Mercantile Exchange announced an investigation into bad high frequency algorithms being employed in its own marketplaces. Infinium Capital Management is in the middle of a six month with regards to its "bad algorithm" that caused oil prices to jump. From Business Insider: 'Five seconds after the firm turned it on, they had to turn it off. The algo[rithm] "choked," after it had already flooded the oil market with orders that made up 4 percent of average daily trading volume in the contract, and caused a brief 1.3 percent jump in oil prices, from $76.60 to $77.60.' Two to three thousand orders per second caused 4,612 "buy limit" orders which were met with huge block trades minutes later at the offset position netting the company a cool $1.03 million LOSS. Imagine turning on your high frequency trader and five seconds later you're out one million dollars. If you haven't yet doubted the prudence or the extreme volatility of high frequency trading the forthcoming civil case might make the decision for you."
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