Flash Crash — Trading Wiki

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Published by TradeHQ. Site creator: Anuga Weerasinghe. This page has no recorded editorial review date; the About page explains the site's editorial approach.

What Flash Crash means

A very rapid price decline, sometimes followed by a partial or full recovery. Its causes and later path require event-specific evidence.

In depth

A flash crash describes a very rapid price decline, often with at least a partial rebound. The term is descriptive and does not establish one universal cause or a guaranteed recovery. Liquidity withdrawal, order interactions, outages and other mechanisms require event-specific evidence. A plotted candle cannot identify a responsible participant or prove an algorithm caused the move. During a disruption, an expected quote and an executable price can differ, and orders can be delayed or remain unfilled. This entry makes no historical point-loss or liquidation-total claim; use a dated official event report for such figures.

Key points

• Very rapid price decline; the extent and timing of any recovery vary
• Liquidity withdrawal, order interactions or errors are possible explanations requiring event-specific evidence
• A plotted price path alone cannot identify the cause or guarantee a recovery

Why it matters when you are learning

Use separately dated records to compare the price path and available liquidity. A sharp decline need not recover, and intended stops or limits do not guarantee execution.

Worked exercise and its limits

Sketch a rapid price decline and partial rebound. Compare a market order submitted during the decline with an unfilled limit order. Candle shape alone cannot identify a single cause, and a fast decline need not recover fully.