On Wednesday, a computer software error at Knight Capital Group snowballed into some mayhem in the American stock market. Knight Capital uses algorithmic trading, where stock transactions are controlled by computers rather than people, and a glitch caused that system to make unwanted purchases and sales for 30 minutes.
It took 45 minutes to figure out the problem, and today Knight Capital said the error led to a pre-tax loss of about $440 million. That's a very pricey mistake, costing nearly $10 million per minute. Knight Capital's second-quarter revenue this year was just $289 million, so the algorithm issue may drive it out of business.
Unexpected crashes like this can certainly make the stock market seem terrifying to a non-financier. There are plenty of ideas and theories about how to play the field, with some researchers even claiming that Twitter can be used to predict stock performance. But no matter how lucky you are, the recent stock troubles of Facebook remind us that there are very few sure things in finance.
[Image credit: Bill in flames via Shutterstock]
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