The Dow fell 1,000 points before recovering 700 points by the closing bell, ending the day down 347.80 points (3.2 percent) at 10,520.
SEC officials are now investigating whether a single trader caused the sudden crash, when he accidentally placed an order to sell $16 billion, instead of $16 million, worth of futures.
The mistype caused computer trading programs to initiate massive sell-offs across the market, sending the market on an unexpected downward spiral.
Investors have set up these computer programs to react instantly to sudden changes in the stock market. The programs use complex algorithms to react instantly to the market, and give traders the best possible price on trades.
But Thursday demonstrated how easily the system can malfunction, as computerized selling led to more computerized selling – intensifying the sudden fall.
The New York Stock Exchange reported that it experienced no problems on its end, and that the SEC would hold a conference call with various markets to discuss the incident.
Nasdaq canceled all trades that were executed between 2:40 p.m. and 3 p.m. that it considered “clearly erroneous.”
The Dow has fallen 631 points (5.7 percent) since Tuesday amid fears of Greece’s massive debt crisis (As well as the 200,000 gallons of oil spewing into the Gulf every day; flooding that has devastated Memphis; and Call of Duty’s programmers leaving Activision to start their own company, Respawn Entertainment.)
Below is an example of one of those automatic computer trading programs. They have long been criticized by market analysts and, in my opinion, they should be outlawed.