They can also analyse vast amounts of information far quicker than humans.But algorithms aren’t perfect and they don’t always get it right. Sometimes they over- or under-react to events.’Perfect storm’That may have been what happened with the pound during early morning Asian trading hours when New York investors were getting ready to turn in and their Tokyo colleagues were about to start a new day.Thousands of kilometres (miles) away, French President Francois Hollande was calling for tough negotiations with Britain over its European Union exit.They were relatively underwhelming comments, but the machines reacted. And with not much trading volume at that time, the reaction was an outsized "perfect storm", analysts said.The pound dropped to a fresh 31-year low of $1.1841 before rebounding rapidly to around $1.2450.The pound’s plunge "unfortunately, occurred in the ’twilight’ zone between the New York close and the start of Asia at a time when liquidity is always at a premium", Jeffrey Halley, senior market analyst at forex firm OANDA, wrote in a commentary.The currency "quickly dropped in a matter of minutes on algorithmic driven selling".The Financial Times -- among the first to report Hollande’s comments -- said the computers might have been reading its website. "Many algorithmic traders include tracking news websites in their systems. The FT story was first published the same minute as the move lower began," the paper said.- AFP

Source: The Nation Bangkok October 07, 2016 10:07 UTC