
Originally Posted by
Melonie
Lately, there is also the factor of 'program trading' - wherein big fund managers will pre-program their computers to enter buy or sell orders on a particular stock at a particular threshold price. Last I heard, 'program trading' now accounts for more than 50% of total shares traded on the stock exchange. 'Program trading' may explain the case you refer to where a particular stock dropped 10% in a matter of minutes. Consider the following scenario TYCO is selling at $31 a share ... a published downgrade by a big financial house causes a total of 100,000 privately held shares to be sold by individual investors, which depresses the price of TYCO stock below $30. The computers at the big funds pick up TYCO's fall below a pre-programmed $30 'sell' threshold, and proceed to instantaneously issue computer generated 'sell' orders for 1,000,000 more shares held by the big funds. After the 'program trades' are through, TYCO shares have dropped all the way to $27 !
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