July 8, 2010
The use of algorithms by traders frequently disrupts the supply and demand equilibrium of the market. When unfilled sell orders outweigh unfilled buy orders sitting on the sidelines in algorithms, prices become inflated and no one wants to step up and make bids until the unfilled buy orders outweigh the unfilled sell orders sitting on the sidelines. This phenomenon interferes with the price discovery process in our financial markets. It also increases volatility which lowers share values and it sets the market up for a possible catastrophic crash at some point in the future when genuine bad news hits the market. Until this problem is addressed the current market structure will remain broken.