This Is What Happens When A Buggy Algorithm Goes Crazy On A Stock
Algorithmic trading, the use of pre-programmed computer codes to place orders and execute trades, is supposed to be the fastest, smartest way to trade in today's stock market.
But sometimes the "bots," as they are affectionately called, get buggy. That's what Nanex, a market research firm, has noticed is happening today.
An algorithm placing orders in WPCS International Incorporated (WPCS), a communications infrastructure company, has sent/canceled 1.4 million orders since 11am when it turned on.
That's a rate of 200 orders per second.
That means that of all 7771 in the United States' National Market System, WPCS has had the 6th most quotes of the day and is making up 0.62% of all quote volume.
Nanex says that all these quotes are coming through Chicago Board Options Exchange (there are 8 other exchanges quoting this stock).
To put that in perspective, WPCS has an average volume of 25,731 over the last 3 months. Apple has an average volume of 21,451,000 over the last 3 months.
So today's orders are unprecedented, as WPCS doesn't usually see that much action.
And this is all stemming from one algorithm. Imagine a Roomba carpet cleaner with a bug in it, backing up and hitting the same spot on a wall over and over again. Now imagine it doing that 200 times a second.
The kicker is, there have only been 9 trades executed in this stock all day.
"It's just 9 trades. This stock is very inactive. Well, except for the 1.7 million canceled orders," Nanex CEO Eric Hunsader told Business Insider. "The algo places a buy order at $0.47 which makes it best bid. Then it cancels - which brings CBOE's top bid back down to $0.46 and changes the best bid. 200 times a second."
The best bid is the highest quoted price for a stock (in this case) offered by competing traders looking to buy or sell.
"If it keeps this up, it will surpass SPY and have the highest number of quotes for all stocks," Nanex CEO Hunsader added.
The SPY is the exchange traded fund (basket of stocks) that tracks the S&P 500. It has an average volume of 139,652,000 over the last 3 months.
Basically, this algorithm is stuck and its just spraying a lot of orders around for no reason at all.
Since there are only two prices here ($0.46 and $0.47), the chart below showing this activity isn't that wild. It's just weird.
