This is a really interesting and unfortunate business story. Yesterday (August 1st) there was a HUGE amount of trades that flooded the stock market when it first opened. The volume of trades was many times what it usually is. There was no news or anything, but the cause of it was a mistake at the trading firm Knight Capital Group. Apparently, they had some sort of software or algorithmic trading program that went haywire and started making an insane amount of trades. Some normal everyday stocks were up 30% just because of these erroneous trades.
Knight Capital announced today that it cost them about $440 million dollars to get out of the massive amount of erroneous trades that they made. This is a huge loss, but a few months ago JP Morgan lost $5+ billion dollars in a mistake that they made. $440 million is still a huge mistake, and the value of Knight Capital before this happened was just over $1 billion, so they couldn’t afford to make a mistake this huge. What is also stunning is that this all happened within about a 10 minute period. It is a good thing that this chaos didn’t spread and cause widespread problems in the stock market.
Knight Capital’s stock fell from around $10 to now around $3.50. This is a reminder that the stock market can be an extremely dangerous place. This doesn’t relate all the much to the average person that occasionally buys and sells stocks, but we can learn a few things from it. First is that the stock market and more specifically individual stocks can be extremely risky at times. Second, you should always triple and quadruple check all orders that you put into the market to be sure that they are accurate. And third I think that people should regularly check up on their investments so that they understand how they are currently performing and to ensure that there are no mistakes that have gone unnoticed.
