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Did Computers Cause the May 6 Stock Market Crash?


With high frequency trades accounting for more than half of all stock market volume, one glitch can cause a crash on Wall Street.

The jury is still out on why the market plunged nearly 1,000 points in intraday trading on May 6. Theories have flown about, from a trading typo involving Procter & Gamble (PG) to reactions to the unsettling economic environment in Europe. Whatever the cause, blue chip stocks like Philip Morris (PM) and Accenture (ACN) plunged, causing a brief spell of panic on the Street.

But the incident, unprecedented in market history, highlighted the role computers -- namely those that make high-frequency trades in that matter of nanoseconds -- play in the markets. According to the New York Times, whatever caused the initial sell-off "apparently set off algorithmic trading strategies, which in turn rippled across everything, pushing trading out of whack and feeding on itself."

So, has Wall Street's reliance on computers finally gone too far?

Join Josh Lipton for a closer look.

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No positions in stocks mentioned.
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