[QUOTE=Infomania;49345]Wow, no wonder I’m nervous Oil prices plunged, finishing the week at $97.18 per barrel, down $16.76, in the biggest weekly dollar loss since oil began trading on the Nymex in 1983.[/QUOTE]
You should be nervous, but maybe not for the reason you may think. This was a “flash crash” caused by automated trading programs executing stop-loss orders. What happens is a bunch of speculators set automatic sell limits at various prices. There are so many of these people that you may have thousands of latent sell orders sitting out there at varying prices. Speculators use these things because they don’t have the capital to cover temporary losses (as opposed to the people who buy and sell oil contracts because they are actually in the oil business). So let’s say oil’s at 105 and there’s a couple of thousand automated orders to sell at 103. Normal fluctuation drops it to 103, which triggers a bit wave of selling, which drops it to 101, which triggers the latent stop-loss orders that were at 102, which drops it to 100 … you get the idea.
This is what happens when you convert what used to be more or less reasonable contracts markets into casinos patronized by robots. Nobody, but nobody, understands how these things will behave in even mildly abnormal circumstances.
Cheers,
Earl