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How Does Algorithmic Trading Affect Your Investments?
The US stock market just experienced one of its more impressive down days ever, with the S&P 500 losing 783 points out of 27,782. This was not the worst percentage drop ever but it vied for the most points of the S&P 500 lost in one day. There are lots of valid concerns about the longevity of the current bull market such as an uncertain trade war, rising interest rates, and tepid earnings. However, much of the blame for the one-day drop in the market is being placed on trading algorithms that control roughly 80% of daily stock trading. That being the case, how does algorithmic trading affect your investments?
CNBC writes about machines that control 80% of the US stock market.
“Eighty percent of daily volume in the U.S. is done by machines, so what you get is a lack of focus on earnings, a lack of focus on outlooks and you just get short-term movements based on very specific data that is released every day and that creates noise,” Guy De Blonay, fund manager at Jupiter Asset Management, told CNBC’s “Squawk Box Europe.”
The daily volume of algo trading can change according to volatility. But over the last few years its impact has become more visible. In 2017, J.P. Morgan said that “fundamental discretionary traders” accounted for only 10 percent of trading volume in stocks. This is when traders look at companies’ performance and outlook before deciding whether to buy or sell the shares.