Flash Crash
| On May 6, 2010, the Dow Jones Industrial Average (DJIA) fell about 1000 points, or 9%, in a matter of minutes. This event, which came to be known as the “flash crash,” was the biggest one-day stock market drop in history. So what caused the flash crash? There are a few theories. One is that it was caused by “high-frequency trading” (HFT), which is a type of trading that uses computer algorithms to make trades in milliseconds. HFT makes up a large percentage of trading activity on Wall Street, and some people believe that it can destabilize the markets. Another theory is that the flash crash was caused by “order imbalances.” This means that there were more people trying to sell stocks than there were people trying to buy them. This can happen when investors get worried about the market and start selling their stocks. Whatever the cause, the flash crash showed that the stock market is still vulnerable to big drops, even though it has recovered from the crash of 2008. So if you’re thinking about investing in the stock market, it’s important to be aware of the risks. |
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