With all the hype and excitement regarding trading robots and automated strategies, recent events are painting them in a different color. Knight Capital Group lost over 70% of its stock value in 2 days after its algo failed, resulting in a realized loss of $440 million of its own capital in just 45 minutes.
Also, in Russia a hedge fund trading USD/RUB futures on the RTS exchange suffered at least $2 million loses (or as much as $4.3 million according to some sources) in just 2 minutes as its robot suddenly started buying at 33.90 and selling at 32.75. Within minutes the out of control robot generated $700 million worth of volume until it halted trading on its own or was stopped by its operators. RTS said that since this is not a failure of the exchange’s technology it doesn’t intend to annul the trades and refund the losses to the unlucky robot’s owner.
The owner wasn’t identified, but Nord Capital was named by some as the fund behind the failed strategy.
All this intensifies the already heated discussion, especially after May 2010′s flash crash, whether algo trading robots are better than human trading and whether they should be monitored and limited.