Loading ...In 2015, London-based trader Navinder Singh Sarao was arrested following allegations of market manipulation that resulted in the Flash Crash. According to the charges, Sarao’s trading algorithm executed a number of large selling orders of E-Mini S&P contracts to push the prices down, which ultimately triggered the market crash.
“a cancel if close function, so that an order is canceled if the market gets close.” on software.
Sarao was trading E-mini S&P 500 futures contracts, but he wanted a more convenient way to not trade them, so he e-mailed his FCM (futures commission merchant, i.e. broker) for help automating that. The idea is that he would put in a big order to sell a whole bunch of futures at a price a few ticks higher than the best offer.
So probably he wouldn’t sell any futures, since he wasn’t offering the best price. But he had to keep constantly updating his orders to keep them a few ticks higher than the best offer, to make sure that he didn’t accidentally sell any futures as the market moved. And that’s a bit of a pain, so he programmed an algorithm to do it for him. Though he also seems to have done similar things manually, to support the algorithm’s efforts, or to stave off boredom while the algorithm did its thing.
Guy Trading at Home Caused the Flash Crash