"It's Alive" - Copper Algo Goes Wild While No One Was Watching

"Twas the eve of President"s Day and nothing was stirring (in Europe, China, or US markets) except that is, a wild algo in the LME copper pits...

Late Monday evening in London, with all but a few die-hard traders in China were asleep, the European workday was ending and Americans had a public holiday, "Franken-copper" was born.

As Bloomberg reports, for traders still watching their screens, the reason behind whipsawing moves in London copper was obvious: an algorithmic trading system had gone off the rails, said Guy Wolf, global head of market analytics at commodities brokerage Marex Spectron Group Ltd.

For half an hour, copper zigzagged by almost $100 on the London Metal Exchange. More than 2,200 contracts traded between 6 p.m. and 6:35 p.m., the most for that time of day since 2012.

Sudden jolts in markets, often called flash crashes, are becoming more frequent as markets become increasingly complex and fragmented.

In recent years, the LME has tried to attract more high-frequency traders and modernize its systems to boost liquidity and trading on the exchange. The move has attracted some criticism from veterans such as Michael Farmer, co-founder of hedge fund Red Kite, who warned last year that algorithmic funds were creating an uneven playing field.

“Algorithms will blindly follow the tasks they are set within the parameters they are given,” said Wolf. “As markets become increasingly electronic, we often see high levels of intraday volatility for brief periods that ultimately result in little overall price movement.”