Broken quotes as liquidity events

When a working system stops

A strategy that once produced the intended results can later stop doing so for more than one reason. When a system stops working, modifying it to recover prior results is not always preferable to abandoning that system.

System failure is not limited to retail procedures. Professional systems that rely on complex algorithms can fail as well.

How an algorithm fails

An algorithm can fail because of mistyped input, a programming defect, or a complete system outage. In the 2012 equity-market setting described, algorithmic or high-frequency activity accounted for about half of trading volume and was also becoming more common in currency markets. A broken quote in that setting is a market event, not proof that a personal rule set should be rewritten.

Unusual activity is a live-screen fact

Recognizing that an algorithm has failed requires prior knowledge of the usual behavior of a given equity or currency pair so that unusual activity can be identified. That identification depends on continuous live-screen observation rather than intermittent review.

Design a new system instead of matching speed

High-frequency participants had taken the role once held by floor traders and could complete stock entries and exits in milliseconds. Remaining viable in that environment was framed as a need to design new systems rather than to match millisecond-scale turnover directly.