The term, also spelled “flash crash”, entered market lingo after the Dow Jones index crashed around 1,000 points in May 2010, wiping out nearly $1 trillion in value for investors. shareholders before bouncing back in minutes. Flash crashes are examples of extreme market volatility or structural problems.
Most are the result of human error, such as “fat finger” errors where a trader may accidentally add an extra zero to an order or accidentally request that a large order be filled immediately rather than broadcast to the market. market. They can also be caused by computer bugs and algorithms that have gone crazy.
Here are some examples of recent flash crashes:
- December 4-5, 2021: Bitcoin crashed, wiping out a fifth of its value and leading to the liquidation of positions worth $2 billion.
- February 25, 2021: Prices for US Treasuries fell sharply amid tight liquidity, before recovering in about an hour. The Fed documented the event.
- August 26, 2019: The Turkish lira tumbles as investors reduce risk exposure and briefly push the safe-haven yen higher against the pound.
- January 3, 2019: Major currencies experienced a flash crash against the yen, driven primarily by technical, not fundamental, factors.
- October 7, 2016: The British pound lost up to 10% of its value in minutes of trading, fueled by concerns over the vulnerability of the currency and other UK assets to Brexit.
- August 24, 2015: US stock markets and equity-related futures markets experienced unusual price volatility, sending the SPDR S&P 500 ETF Trust down 7.8% five minutes after the market opened. The ETF recouped its losses within five minutes.
- October 15, 2014: The US Treasury securities market experienced high levels of volatility and Treasury futures prices fell rapidly amid diminishing liquidity. The incident triggered a regulatory investigation. While she couldn’t find a single cause, she noted record trading volumes, a drop in order book depth, and changes in order flow that day that may have contributed. to collapse.
- May 4, 2010: Unstable market conditions combined with a massive sell order for a popular futures security caused the Dow Jones to plunge about 9% in minutes before rebounding. The event was dubbed a “flash crash” and led US regulators to put in place a protection known as “Limit-Up Limit-Down”, which prevents stocks from trading outside a specific range. based on recent prices, halting trading of the stocks in question when prices break above the bands. In 2016, a London-based trader was found guilty of manipulating the futures market in a way that contributed to the flash crash of 2010.