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What is a flash crash?

Flash crash

It's a very rapid, deep and volatile fall in security prices within an extremely short period of time. A flash crash often stems from trades executed by black-box trading and high-frequency trading, whose extreme speed can lead to the loss and recovery of billions of dollars in minutes or seconds.

Where have you heard about flash crashes?

The most famous example occurred on May 6, 2010, when a $4.1 billion trade on the New York Stock Exchange led to a 1,000-point fall in the Dow Jones Industrial Average and then to a recovery, all within about 15 minutes.

What you need to know about flash crashes.

There've been a number of these startling events in recent years:

  • 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. The pound recovered much of its value in the next few minutes.
  • On June 22, 2017, the price of ethereum, the second biggest digital cryptocurrency, plunged from more than $300 to as low as $0.1 in minutes at GDAX exchange.
  • On June 26, 2017, around $2 billion of gold futures were sold, causing the price to suddenly plunge by $18 an ounce (1.6%) in a minute, before bouncing back to $1,236.

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