What You Need to Know

Flash crashes can occur beyond the immediate control of human beings. They may be produced by algorithmic trading programs, triggering one another to sell in a feedback loop. When such programs are managing large volumes of assets, the consequences of such a loop can be dramatic. This can then spill over into the futures market and cause a knock-on cascade of liquidations adding further momentum to the decline. Sometimes, a flash crash can be a result of intentional market manipulation or foul play, where large investors known as “whales” employ methods such as stop hunting or creating fake buy/sell walls.