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Flash crash

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Not to be confused with Flash Crash of 1962.

A flash crash is a very rapid, deep, and volatile fall in security prices occurring within an extremely short time period. A flash crash frequently stems from trades executed by black-box trading, combined with high-frequency trading, whose speed and interconnectedness can result in the loss and recovery of billions of dollars in a matter of minutes and seconds.[1]

Occurrences

Notable[according to whom?] flash crashes have occurred As of January 2019:[citation needed]

2010 flash crash

Main article: 2010 flash crash

This type of event occurred on May 6, 2010. A $4.1 billion trade on the New York Stock Exchange (NYSE) resulted in a loss to the Dow Jones Industrial Average of over 1,000 points and then a rise to approximately previous value, all over about fifteen minutes. The mechanism causing the event has been heavily researched and is in dispute. On April 21, 2015, the U.S. Department of Justice laid "22 criminal counts, including fraud and market manipulation" against Navinder Singh Sarao, a trader. Among the charges included was the use of spoofing algorithms.[7]

2017 Ethereum Flash Crash

On June 22, 2017, the price of Ethereum, the second-largest digital cryptocurrency, dropped from more than $300 to as low as $0.10 in minutes at GDAX exchange. Suspected for market manipulation or an account takeover at first, later investigation by GDAX claimed no indication of wrongdoing. The crash was triggered by a multimillion-dollar selling order which brought the price down, from $317.81 to $224.48, and caused the following flood of 800 stop-loss and margin funding liquidation orders, crashing the market.[8]

British pound flash crash

On October 7, 2016, there was a flash crash in the value of sterling, which dropped more than 6% in two minutes against the US dollar. It was the pound's lowest level against the dollar since May 1985. The pound recovered much of its value in the next few minutes, but ended down on the day's trading, most likely due to market concerns about the impact of a "hard Brexit"—a more complete break with the European Union following Britain's 'Leave' referendum vote in June. It was initially speculated that the flash crash may have been due to a fat-finger trader error or an algorithm reacting to negative news articles about the British Government's European policy.[9]

USDJPY and AUDUSD flash crash

On January 2, 2019, a flash crash was seen in the value USDJPY and AUDUSD, which dropped more than 4% in a few minutes. It was the USD lowest level against the Yen and AUD against USD since March 2009. The USDJPY and AUDUSD recovered much of its value in the next few minutes. It was speculated that the flash crash may have been due to Apple reporting reduced sales forecast in China but this seems unlikely as the report came out an hour before the actual crash.[10] The lows reported on USDJPY also varied with Reuters reporting a low of 104.90 on USDJPY while FXMarketAPI reported a low of 104.45.[11]

Other crashes

In October 2013, a flash crash occurred on the Singapore Exchange which wiped out $6.9 billion in capitalization and saw some stocks lose up to 87 percent of their value. The crash resulted in new regulations being announced in August 2014. Minimum trading prices of 0.20 cents per share would be introduced, short positions would be required to be reported, and a 5 percent collateral levy implemented. The exchange said the measures were to curb excessive speculation and potential share price manipulation.[12]

Two short-lived (less than a second) movements (more than 1%) in several (40 and 88) stock prices followed by recovery were reported for November 25, 2014.[13]

Significance of recovery

Events described as flash crashes typically exhibit a rapid partial or total price recovery.[citation needed] Conversely, rapid price falls in response to adverse news (e.g. disappointing earnings announcements) which do not rapidly revert are not generally characterized as flash crashes.

See also

References

  1. ^ Bozdog, Dragos (July 2011). "Rare Events Analysis of High-Frequency Equity Data". Wilmott Journal, pp. 74–81, 2011. SSRN 2013355. Retrieved 20 November 2013. {{cite journal}}: Cite journal requires |journal= (help)
  2. ^ "Pound's plunge joins growing list of 'flash crashes'". Financial Times. 7 October 2016. Retrieved 27 October 2017.
  3. ^ "Switzerland's central bank lost $51 billion and the franc is getting hammered". Business Insider. Retrieved 2017-10-30.
  4. ^ Davies, Rob (2016-10-07). "What caused the pound's flash crash?". The Guardian. ISSN 0261-3077. Retrieved 2017-10-30.
  5. ^ "Three things caused the flash crash in forex market". ForexLive. Retrieved 2019-01-03.
  6. ^ "Currencies flash crash recap: Where are we now?". ForexLive. Retrieved 2019-01-03.
  7. ^ "How a Mystery Trader With an Algorithm May Have Caused the Flash Crash". Bloomberg.com. 2015-04-22. Retrieved 2017-02-08.
  8. ^ Kharpal, Arjun (22 June 2017). "Ethereum briefly crashed from $319 to 10 cents in seconds on one exchange after 'multimillion dollar' trade". CNBC. Retrieved 24 June 2017.
  9. ^ "Pound struggles to recover after plunging 6% in 2 minutes". Financial Times. 7 October 2016.
  10. ^ "Yen flash crash: what happened and why". Financial Times. 3 January 2018.
  11. ^ . FXMarketAPI https://fxmarketapi.com. {{cite news}}: Missing or empty |title= (help)
  12. ^ "Singapore Exchange regulators change rules following crash". Singapore News.Net. Archived from the original on 8 August 2014. Retrieved 2 August 2014.
  13. ^ "Two mini-flash crashes rock stock market Tuesday". MarketWatch. Retrieved 25 November 2014.
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