Grexit Strategists ; Complex Trading Algorithms Could Predict -- or Even Cause -- a Eurozone Meltdown. Simon English Reports

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[broken bar] OUR yourself a gin and tonic.

PEasy on the tonic. Wrap an ice cold towel around your head. Try to relax.

That's the advice of a stock market professional of four decades' standing in answer to a question about algorithmic trading.

It's an understandable reaction, but with Greece teetering on the brink of disaster and the rest of the world nervously eyeing the fallout, the secretive world of the algo-trader might be dragged into the sunlight.

To those of conspiratorial bent, the algos do something like this: come up with a mathematical expression of what the end of the world would look like. Feed it into a computer. Press Go.

Such high frequency trading -- it tends to be rapid -- is now said to account for between 40 and 70 per cent of all deals on stock markets across the globe. Of all the various financiers who might bet on disaster -- hedge funds, commodity brokers, the lads on the credit derivatives desk -- it is the algos who seem most vital in deciding the immediate future of Greece.

They think Greece has had it. That a so-called "Grexit" from the euro is inevitable. And since they've mostly got doctorates in astrophysics, only a brave woman would bet the other way.

With customers pulling money from Greek banks apace, the political process seemingly in disarray and markets tumbling, the next few days could be the most vital for the global economy since Lehman Brothers went under in 2008. If computers could lick their lips, they might now be doing so.

So who are the guys behind the machines and should they be stopped? First, a maths refresher: algorithms are formulas that try to remove human error from the trading process. They are fed into thousands of computers across London and elsewhere. Across the globe, computers trading with each other look to exploit tiny differentials in prices. A profit of 0.00001p is no use ... unless you make it a thousand times a second.

It's sometimes called black box trading and it has already been blamed for causing stock market crashes by exacerbating already volatile situations.

The algos trade on momentum. If could their they now be doing They don't care if Greece is really going bust, they just measure how long it looks like it is.

They assume that trends will last for longer than human investors tend to expect. As such they may force markets further up or down than they might otherwise have gone. Equilibrium will be restored, so there's no problem as long as that doesn't turn out to be too late . …