Flash crash: Difference between revisions

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A flash crash is a very rapid and deep fall in stock or security prices followed by an immediate rebound to approximately the previous price occurring within a short timeframe. A flash crash stems from faulty trades executed by black-box trading, combined with high-frequency trading, whose speed and interconnectedness of financial products result in the loss and recovery of millions of dollars.^[1]

This type of event occurred on 6 May 2010 when a $4.1 billion trade on the NYSE, minuscule against the volume of trading, resulted in a loss to the Dow Jones Industrial Average of over 1000 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. Further flash crash events may or may not occur.

Two notable flash crashes have occurred as of August 2013:

May 6, 2010, Flash Crash (type event)
April 23, 2013, Flash Crash

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^ Lin, Tom C. W., The New Investor. 60 UCLA Law Review 678 (2013). Available at SSRN: http://ssrn.com/abstract=2227498

[1] Lin, Tom C. W., The New Investor. 60 UCLA Law Review 678 (2013). Available at SSRN: http://ssrn.com/abstract=2227498

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 {{mergeto|High-frequency trading|date=August 2013}}
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-{{unref|date=August 2013}}A '''flash crash''' is a very rapid and deep fall in stock or security prices followed by an immediate rebound to approximately the previous price occurring within a short timeframe.
+{{unref|date=August 2013}}A '''flash crash''' is a very rapid and deep fall in stock or security prices followed by an immediate rebound to approximately the previous price occurring within a short timeframe. A flash crash stems from faulty trades executed by [[Black-box trading|black-box trading]], combined with [[High-frequency trading|high-frequency trading]], whose speed and interconnectedness of financial products result in the loss and recovery of millions of dollars.<ref>Lin, Tom C. W., The New Investor. 60 UCLA Law Review 678 (2013). Available at SSRN: http://ssrn.com/abstract=2227498</ref>
 This type of event occurred on 6 May 2010 when a $4.1 billion trade on the NYSE, minuscule against the volume of trading, resulted in a loss to the Dow Jones Industrial Average of over 1000 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. Further flash crash events may or may not occur.