Definition of Flash Crash





What was the "flash crash"? What is the definition of the term "flash crash"?

On May 6th, 2010, the "Flash Crash" occurred (some people will refer to this as the "Flash Crash of 2010").

On May 6th, the DJIA (Dow Jones Industry Average) opened at 10,862.22.

definition of Flash Crash in the Stock MarketSuddenly and inexplicably, the index started to crash, trading as low as 9,787.17. The crazy thing about this dip, and the reason for the term "flash crash", is that the majority of this decline took place over the course of just a few minutes.

The markets quickly rebounded, and the index closed the day at 10,520.32. Still a sizable loss, but nothing compared to the 1,000+ point dip that took place intraday.

So what caused this "flash crash"? Rumors swirled. A "fat-fingered" trade? Or something else?

The SEC and CFTC eventually pointed to a "large fundamental trader" as the catalyst for the flash crash. This "trader" apparently initiated a sell program to sell 75,000 E-Mini contracts.

The report also fingered HFTs (High Frequency Traders) as part of the reason that the markets crashed as well, as they apparently contributed to the intense selling pressure that brought the markets to its knees for a few moments on May 6th, 2010.

Note: The NASDAQ and S&P 500 also crashed on May 6th, 2010 as well - it didn't just affect the DJIA. The NASDAQ crashed from 2,391.21 to an intraday low of 2,185.75, while the S&P 500 traded down from 1,164.38 to 1,065.79 intraday.




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