Automated Trading Technical Issues: Under-Rated Risk

Knights Capital Group realized a pre-tax $440Million loss (Aug. 2, 2012 Press Release) due to a "technology issue at the open of trading at the NYSE". For such a prestigious Wall St. firm, full of PhDs, this was certainly startling. 

Scalability of strategies

I think a big incentive for automation’s the idea that one could automate a ton of different strategies and thereby achieve returns of low volatility. Risk management around technical issues often get ignored, or at best addressed with the “Here’s our prime broker’s number, if everything’s f&*#ed… ”.

  

Possible Solution

Any edge that could be realized manually, I’d do on my own. If the edge is genuine, there are plenty of financial products with enough liquidity to scale up.