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It has been comical to watch the parade of guests on the business news channels this week try to explain to viewers, and to one another, why our hyper-efficient financial markets — the ones that are supposed to be so brilliant at pricing the value of everything — have been bouncing around like a squash ball on an overheated court. Pay no attention to the volatility, these financial wizards assure us.

The fundamentals of our otherwise sound economy will soon reassert themselves. Why is it that when the market is climbing by improbable leaps and bounds month after month, that we learning how to trade dubai stock exchange supposed to take that as a genuine reflection of the fundamentals, but when the market is in a free fall, we are supposed to write that off as momentary fits of irrationality?

The truth is that the market is just as irrational and divorced from fundamentals on the way up learning how to trade dubai stock exchange it is on the way down. It is in the nature of markets more so today than ever, thanks to the learning how to trade dubai stock exchange high-frequency trading strategies of learning how to trade dubai stock exchange Wall Street wise guys.

Another 40 percent or so reflect decisions to invest in the entire stock market, or an entire industry, or an entire class of companies — index funds, exchange-traded funds ETFs or other kinds of passive investments. That leaves half the trading that is done automatically by computers, according to complex algorithms that focus on changes in market prices or indices caused by the trading done by other computers.

In this kind of robots v. And almost all of it is done with borrowed money. Credit Suisse has now announced it would soon stop trading in the instrument, which in hindsight seems like the only sporting thing to do.

Aside from the gambling aspect, the rationale put forward for these ridiculously complex instruments and trading strategies is that they reduce price volatility and increase market liquidity, which is true except when it is not, which is precisely at those moments of market panic. Instead of hedging risk, which is often the reason that people buy these instruments, they wind up increasing risks for those who own them and the market in general. This is particularly true in a market such as this one, where the amount of trading done with borrowed money is higher than it has ever been, thanks to the low interest-rate policies of the major central banks that allow hedge funds to borrow four or five dollars for every one of their own they put at risk.

When prices start to fall rapidly, the funds are forced to sell their positions to pay back the banks and brokerage houses, driving down the price even further. Selling begets yet more selling. Investors rushing to covering of short positions, or to sell underwater learning how to trade dubai stock exchange before they expire, run into a similar dynamic. And, of course, what happens with one asset class can affect what happens in all the others. And it works in reverse when fear replaces greed.

In truth, there is no reason that a financial system has to be this complex and so volatile. With a bit of intelligent regulation, we could have a financial system that is simpler, less risky, less expensive and less susceptible to manipulation.

And my guess is that those costs now greatly exceed the benefits. Steven PearlsteinColumnist. This article was originally published by The Washington Post. The views expressed in this article are those of the author alone and not the World Economic Forum. We are using cookies to give you learning how to trade dubai stock exchange best experience on our site. By continuing to use our site, you are agreeing to our use of cookies.

A small fraction of the trades on stock markets are made by a real-life human, half the trading is done automatically by computer. Fueling the US economy's middle market growth engine Andrew S.

Weinberg 12 Apr Viewing them as 'leftover' is problematic Peter Vanham 12 Apr More on the agenda. Cleaning up battery supply chains Our Impact. Explore the latest strategic trends, research and analysis. Do we need social stock exchanges? How does news analytics affect the stock market?

Written by Steven PearlsteinColumnist. Financial and Monetary Systems View all. Chart of the day: The world's most expensive prime property Adam Jezard 12 Apr What's next for central banks? Stop talking about financial inclusion. Identity inclusion must come first Husayn Kassai 11 Apr The key to tackling financial exclusion?

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