The coronavirus outbreak has turned global markets into the ultimate roller coaster, with panicked trading creating huge price swings and deep point losses.

On the New York Stock Exchange floor, one trader recently described the mood to Yahoo Finance. During a particularly volatile week, the Dow Jones Industrial Average (^DJI) posted its biggest-ever point gain — only to give most of it right back the next day.

"The increase in algorithmic trading has contributed to this volatility, as this type of trading can have an outsized impact on prices," says Matt Aronowitz, an NYSE member and portfolio manager at NYAM LLC. He called the whipsaw action “an entirely new trading environment.”

Computer-driven trading algorithms — often faulted for volatile markets even during the best of times — certainly aren't helping now, Aronowitz explained.The algorithms feed off of each other, creating an environment with less liquidity.

"When market volatility increases, liquidity decreases as market makers reduce the inventory they are allowed to carry within their portfolio," the investor explained.

Those movements create escalating price moves, and higher frequency of algorithmic responses — which becomes “a vicious cycle, which is why we have had such a drastic increase in volatility in such a short time period," he said.

He predicts this will continue until we get clarity on how badly the virus will impact the market this year, which ultimately will lead to institutional investors putting money back to work and supporting the market.

Often times, prices need to go far beyond "value" before institutional money is willing to step into this type of market. "This ultimately leads to a cycle of calm and market normalcy, Aronowitz told Yahoo Finance.

But exactly when that will happen is anyone's guess.

Ines Ferre is markets reporter at Yahoo Finance. Follow her on Twitter at @inesreports.

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