I was an inexperienced coder at the time working at a very small shop, so bear in mind that this kind of thing is less likely (though as Knight Capital demonstrated, not impossible) at larger, professional algo trading firms.
One good example is, I had written some code to automatically stop me out of a position if it ran too far against me. I was trading Kospi 200 options, and about a week after Kim Jong-il died, someone started a rumor that his son had been assassinated and Chinese troops were massing on the Korean border. The market plummeted violently, and all my put offers were instantly lifted and bid very far against me. The code path which I had intended to use to send my stop loss orders was inadvertently disabled by a safety flag which I had applied to stop sending a different kind of entry order known as "electronic eye" trade (which basically tried to pick off mis-valued bids and offers rather than make a two sided market).
So I didn't hedge anything as the market kept crashing and eventually liquidity went poof and I was left to manually close out a bunch of large short put positions. Luckily the market came back after the rumor was discredited, but I still lost about a quarter of my year's trading profits in one day in November.
One good example is, I had written some code to automatically stop me out of a position if it ran too far against me. I was trading Kospi 200 options, and about a week after Kim Jong-il died, someone started a rumor that his son had been assassinated and Chinese troops were massing on the Korean border. The market plummeted violently, and all my put offers were instantly lifted and bid very far against me. The code path which I had intended to use to send my stop loss orders was inadvertently disabled by a safety flag which I had applied to stop sending a different kind of entry order known as "electronic eye" trade (which basically tried to pick off mis-valued bids and offers rather than make a two sided market).
So I didn't hedge anything as the market kept crashing and eventually liquidity went poof and I was left to manually close out a bunch of large short put positions. Luckily the market came back after the rumor was discredited, but I still lost about a quarter of my year's trading profits in one day in November.