Did Robotraders Know the Financial Crisis Was Coming?

f you asked a stranger on the street to describe what the stock market looks like, most would probably mention a bunch of sweaty white-shirted types shouting and furiously gesticulating in a Wall Street trading pit. The more erudite might include references to retired rich people playing with their money over the computer or offices full of overworked geeks glued to multiscreen terminals.

These days the reality is that the average trader doesn’t have eyes or hands or emotions. They only have the numbers. Commodities markets the world over have been hijacked by robots or, more specifically, algorithms that can scan data and trade stocks so quickly that their meat-brained creators often can’t keep up with what they’re doing.

High-frequency trading (HFT) accounted for about half of US stock-exchange trades in 2012—approximately 1.6 billion shares a day, according to estimates cited by Bloomberg Businessweek. In many ways, these algorithms mimic human traders’ transactions buying and selling stocks among themselves, though to make trades as quickly as possible, they are equipped with only the most rudimentary analytic tools. Unlike human traders, whose actions are often undergirded by real-world data like a company’s reported quarterly profits or losses, algorithms react only to real-time market movement, and some scientists and analysts now say that all their unsupervised activity might be a problem.