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General Body Meeting. 2/18/14. Discussion Materials Prepared By: The Executive Board. Logic Problem. A snail goes up 3 feet every day, but falls down 1 foot at night. How long does it take for him to go up 10 feet?. Investopedia Word of the Day. Asset Allocation
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General Body Meeting 2/18/14 Discussion Materials Prepared By: The Executive Board
Logic Problem • A snail goes up 3 feet every day, but falls down 1 foot at night. How long does it take for him to go up 10 feet?
Investopedia Word of the Day • Asset Allocation • Investment strategy that seeks to balance risk and reward in an individual’s portfolio • Three main asset classes – equities, fixed-income, cash and cash equivalents • No “formula” for how an individual should balance their portfolio • Factors that influence asset allocation – age, risk appetite and investment objectives • Opposite approach to “putting all your eggs in one basket”
High Frequency Trading and the Flash Crash What is High Frequency Trading • Algorithmic trading that rapidly trades securities • HFT firms move in and out of positions in seconds or even milliseconds • Attempt to capture a fraction of a penny profit on every trade • Initiate millions of trades per day • Over 50% trading volume on equities and 20% of all option volume The Flash Crash • May 6, 2010-DJIA plummeted over 1000 points (9%) • 2:42 pm-Market down 300 points • 2:47 pm-Market down 998 points • Recovered the 700 point loss within minutes • $1 trillion in market value vanished • Eight S&P 500 companies had a traded share price of $0.01. • Exelon (EXC) traded from a high of $43.50 to a low of $0.42 intraday
Mini Flash Crashes What are mini flash crashes? • When shares of a company rapidly plunge then rebound in a matter of seconds • Similar to the 2010 Flash Crash except these happen multiple times a day • Imperceptible by traders • Often occur within 1.5 seconds • Caused by HFT firms trading with each other and flooding the market Examples • Jan. 25-AAPL plunged 2% in the final minute of trading wiping out millions of dollars of Apple’s market value. The stock recovered in the last few seconds of trading. • U.S. Silica Holdings (SLCA) dropped 9% in 2 seconds. 200,000 shares had traded which was 100 times the volume at any other given point. The stock recovered within a few minutes.
