John McCrank

NEW YORK (Reuters] – Monday’s sudden fall in European shares following an erroneous Nordic trade is just one example of a Flash Crash, in which assets drop quickly and then rebound.

After the May 2010 market crash, which saw the stock plummet around 1,000 points and wipe out almost $1 trillion of shareholder value, the term flash crash was adopted by the market. The majority of shares recovered within minutes.

Flash crashes may be caused by extreme market volatility, structural problems or investor insecurity.

They are usually caused by human error. A trader could accidentally add a zero to an ordered or request that large orders be executed immediately rather than being dripped onto the market. These can also occur due to computer bugs and algorithmic errors.

Below are some recent examples:

December 4, 2021: The cryptocurrency bitcoin crash, wiping out half its value, and forcing $2 billion in positions to be liquidated.

Feb. 25, 2021: The prices of Treasury securities https://www.federalreserve.gov/econres/notes/feds-notes/the-treasury-market-flash-event-of-february-25-2021-20210514.htm dropped sharply amid strained liquidity conditions, before recovering within about an hour.

August 26, 2019, Turkey: Investors cut their risk exposure, and the Turkish Lira plunged. The safe-haven yen was briefly elevated against the Turkish lira.

Jan. 3, 2019, Major currencies were hit hard by the yen. The crash was caused mainly by technical and non-fundamental factors.

October 7, 2016,: Sterling lost up to 10% within a matter of minutes. This was due to concerns over the vulnerability of sterling and other British assets in the event of a Brexit.

Aug. 24, 2015: U.S. equity markets and equity-related futures markets experienced unusual price volatility https://www.cfainstitute.org/en/advocacy/issues/flash-crashes#sort=%40pubbrowsedate%20descending, sending the SPDR S&P 500 ETF Trust (ASX:) down 7.8% five minutes after the market opened. In the following five minutes, ETF lost no more than it had before.

October 15, 2014. The U.S. Treasury Securities market experienced high volatility. Treasury futures prices plummeted amid reduced liquidity. A regulatory investigation was launched following the incident. Although it could not pinpoint a single reason, the regulators did note record trading volumes and a decrease in order book depth. They also noted changes in order flow on that day, which may have been factors in the crash.

May 4, 2010. Unsettled markets combined with massive sales of a highly sought-after futures security caused the Dow to plunge around 9% within minutes. It then rebounded.

Flash crashes were dubbed the event and led U.S. regulators creating “Limit Up Limit Down” which prevents stock trading from outside of a range determined by recent prices. This safeguard stops stocks trading out of the specified ranges, suspending trading when the prices exceed these bands.

London-based trader convicted in 2016 of manipulating the futures marketplace and contributing to the Flash Crash 2010.