We all remember the flash crash -- the May, 2010 freak out that sent the Dow Jones (^DJI +0.66%) down 1,000 points for a few minutes before rebounding. It's what happens when computers are in charge of the market. And there's no sign of it letting up. Smaller flash crashes have occurred ever since.
How do we prevent more of these crashes? One solution is: more humans processing trades.
I recently met up with trader Doreen Mogavero on the floor of the New York Stock Exchange. Here's what she had to say about computers and volatility (transcript follows):
Doreen Mogavero: We may not be needed as often as people, because obviously on an average day where things sort of go in a routine manner, and there's no great news events, computers can match small orders pretty well. But when we're needed, we're needed much more than we ever were before, and that you've seen as in terms of the Flash Crash. When things really go awry, people like to speak to other people. When there's really a market news or market event, people really come to the floor, and that's when we see our business pick up here.
Morgan Housel: Do you think we've gone too far in the direction of electronic trading versus humans?
Doreen Mogavero: I think people always go too far in one direction or another, whether it's in this business or any industry. I think there naturally will be sort of a swing of the pendulum, back to the center a little bit because I think you come to realize that one way of doing things is not great. What we offer here is a variety of different ways to get into the marketplace, a variety of different ways to trade, and hopefully there's someone here to meet your needs at all times, whether it's a cataclysmic disaster or some sort of a market news event, there's someone here that you can talk to.
