What is Flash Crash?
A flash crash is a phenomenon of price movement in the market that occurs with a sudden fall in a very short period of time before being followed by an immediate recovery.
Flash Crash occurs on the electronic or automated stock market where a lot of stock withdrawal orders cause the price to fall, followed by an increase or rapid recovery again afterwards.
The situation occurred as a result of a large and sudden sale of stocks in a short period of time which caused a dramatic drop in prices.
However, the price will recover at the close of trading on the same day as if there was no fluctuating activity.
Examples of Flash Crash events
May 6, 2010: The Dow Jones Industrial Average (DJIA) fell more than 1,000 points in 10 minutes. The index lost its value by 9% in 1 hour resulting in $1 trillion dollars of equity. However, it rose again by 70% at the close of the trading day.
August 22, 2013: Trading was halted at Nasdaq for over 3 hours when the computer-generated at NYSE could not process price information from Nasdaq.
18 May 2012: Meta (Facebook) shares were held for more than 30 minutes at the opening bell as a glitch caused a loss of $500 million.
Can Flash Crash happen again?
It can and it still does. According to 2 professors from the University of Michigan, the stock market experiences approximately 12 mini flash crashes a day.
How long does a Flash Crash last?
It happens within a trading day and can last anywhere from a few minutes to a few hours.
