/biz/ - Business & Finance

>>4794948
>>4794592
It was the 80's not 90's, my bad. But basically, this was when SP500 Futures were brand new in Chicago. New "companies" were popping up and offering "portfolio insurance" for your holdings.

Basically, all they did was short the SP500 Futures to make money when your port went down, to offset the losses worst case, and grab a little profit too best case. At this time, algos and quant trading was the new hot thing, so a lot of this port insurance trading was computerized.

From what I recall, things started falling in the real SP500 (and stocks), which lead to port insurers running over to Chicago to short the SP500 Futures, however, the shorting was so strong that it began to drag down the REAL SP500 (due to arbitrage: when the Real SP500 is falling less than the Futures, you're going to want to short the real thing until it drops as far as the Futures to make a profit on the lag).

On top of that, the algos kept triggering other algos to keep short selling as the futures kept dropping (and the real market dropping just to catch up), causing a domino effect of heavy selling.

I read cases of algos trying to buy or sell the market on a market order (instant entry no matter what the price) and the orders were literally hanging there in the air, not getting filled at all, even autofill.