EVERY computer-user knows the feeling of dread when a brand new piece of software causes the entire system to crash. Shareholders in Knight Capital, an American equity broker, now realise how expensive such glitches can be. On August 1st Knight Capital started to use a new software programme to execute its trades. Within an hour the programme had caused turmoil in the market, sending errant buy-and-sell orders that cost Knight $440m. Shares in the company plunged on the day and, by August 6th, shareholders were forced to accept a rescue that heavily diluted their stakes.
Most trades these days are conducted by computer and are completed without fuss. As in other fields, technology has reduced costs, in particular the spread between the bid and offer prices. If lower trading costs encourage more investors to own shares, then the cost of capital for companies will fall, which is good news for the whole economy.