The 2010 Flash Crash explained

Synopsis

In 2010, a flash crash dramatically impacts US equities, with stocks plummeting and then rebounding within 20 minutes. An independent trader living near London faces charges from the US Department of Justice for allegedly manipulating S&P 500 e-mini futures, contributing to this chaotic event. The flash crash results in thousands of canceled trades, with blue chip stocks trading at absurd prices, such as one cent. Investigations reveal that a large sell order in equity futures triggers the price drop and liquidity evaporation. The incident highlights the role of high-powered computerized trading systems in a fragmented US equity market with over 50 trading venues. Following the flash crash, further tech glitches, including the Facebook IPO and the near failure of night trading in 2012, raise concerns about market stability. E-mini futures, which trade around the clock and track the S&P 500, are seen as essential tools for investors to hedge against market volatility.