According to ScienceWorldReport,
When there’s money to be made, most loopholes have already been explored and exploited – but emerging technologies are changing the game, creating new opportunities for moneymakers and headaches for regulators. To counter this, researchers are now using supercomputers to help regulators determine which policy changes will ensure a fairer, more stable market.
With the advent of high-frequency trading, traders can use superfast computers – essentially supercomputers of their own – to compete in the market, taking advantage of brief price differences to clean up on profit. For example, if a stock is momentarily priced slightly lower in New York than in London, high-frequency traders can almost instantaneously buy and sell for risk-free returns.
Such rapid-fire trading – trading often completed in microseconds, or even nanoseconds – can lead to market instability, and regulators haven’t been able to keep up with these shenanigans of high-frequency traders. This volume makes it significantly harder to identify the root cause of a problem. For example, when the Dow Jones fell nearly 1,000 points in 20 minutes in the ‘Flash Crash’ of May 2010, it took US Securities and Exchange Commission regulators five months to analyze the data and figure out what happened. As it turns out, the culprit was flawed automated trading software.
However, sometimes it’s not a software glitch that’s causing the problem. Sometimes high-frequency traders are causing market instability on purpose with a practice called ‘quote stuffing.’ Essentially, a high-frequency trader places an order only to cancel it in .001 seconds or less, solely to cause congestion. The trouble: It all happens so quickly that it’s hard to prove. That’s where supercomputers can help.