How trustworthy are stop-loss orders?

First of all I’d like to inform you why I chose this topic.
On May 6^th of this year, the Dow Jones fell by almost 10% in little over an hour. I saw this happening live on the internet and was dumbfounded for a cause. It was then, that I was told of stop-loss orders. Now, what exactly are these financial creatings and how is it possible that they have such an influence on the exchange rate?

A stop order is an order to buy or sell a share at an agreed exchange rate called a trigger. So let’s say, you give your broker a stop-loss order to sell your shares when the rate goes beneath $50, and if the rate does, the order must be executed.  

On May 7^th, the news said that a broker had accidentally typed three 0’s too much, and had thereby sold shares to the value of 16 billion instead of 16 million. This caused the rate to plummet and to trigger a vast amount of stop-loss orders, causing the rate to plunge even further. Even though the stock exchange reinstated itself in a few hours, there had been losses.

Personally, I find this explanation a bit too trivial. How do we know that these stop-loss orders haven’t been triggered on purpose?  One might see a very lucrative business in buying shares when the rate is at its low, knowing it will recover quickly. And aren’t profits the one thing the stock exchange is all about?

Sarah Duurloo

http://nl.wikipedia.org/wiki/Stop_order

http://925.nl/archief/2010/05/07/handelaar-tikt-drie-nullen-teveel-en-de-beurswereld-stort-in-of-