In May of last year one of the greatest drops ever seen by those involved in the US stock exchange took place and the average person had a very different perception of just what went on when it did. Thinking a massive panic had ensued due to some little known tidbit of knowledge resulting in the stock plunge, after the recovery in the following days we all sighed a breath of relief. But then it turns out the market is not actually run by people. According to economists and the New York Times, 75% of all trade volume is done rapidly by computers with no humans involved. And the next stock market collapse might just be one computer glitch away.
In 2006, the London Stock Exchange had 40% of its market under the influence of so called “Algo” or Algorithmic trading (also known as High Frequency trading). By 2007 the majority of all trading going on in the stock exchange had become by automatic machines. And today only a fraction of all trading on the stock exchange is done by something other than an automated machine. The fact that the foundation of a large part of the economy happens automatically with no oversight due to supercomputers based both in and around the stock exchange as well as the rest of the US has some people concerned about transparency and a great deal more worried about the actions of a single entity wishing the world harm or to swindle others out of millions.
A single hacker, according to some experts, could take advantage of the problems inherent in the system and then destroy the lives of many people financially. But there’s another side to this that seems just as disturbing. Right now the exclusive purpose of these computers is to interface with one another in order to make those who own the computers money. With little human intervention in place, these various machines are essentially communicating and becoming one large machine. And that’s what runs no less than 75% of the stock market on any given day. With computers deciding the fates of billions of dollars, a sufficiently powerful computer could in theory even honestly just find a way to beat the system and take up the greater part of the economy with only a few dollars at the beginning. Of course that’s an extreme scenario and seems fairly unlikely with the checks and balances in place. Right?
Given enough time, a machine could generate millions of dollars by a combination of luck, a little bit of insight, and a lot of processing power. And if that same computer were owned by someone who then manipulated the market, they could theoretically then have a bounty of resources to make their next move.
Of course at the moment this is mostly just the stuff of science fiction. But it’s unnerving to think that in a world where the world’s governments are now taking active steps to fight against economic instability, computers are actually the ones in charge of the economy. And rather than a simple problem of transparency, the investors themselves don’t actually know what’s going on in the market for the most part. And now it’s all becoming part of a vast and incredible machine who knows all that happens to its financial market.