FLASH CRASH: The speedy way of Slowing Economy

The growing rate of technology cannot be imagined by humans but each and everyone is surely getting affected by it. The entry of Artificial Intelligence and the confidence put upon it, has put a dent on the Global Financial Stock Market. Flash Crash is often occurred a phenomenon in the global open market due to the errors in programs and the AI, which is considered the backbone of daily working of the market.

Flash Crash

A flash crash happens in the electronic securities market when there is a large volume of withdrawal of stocks, bonds or other securities, which results in rapid price decline in the market. Flash Crash is a decline in the pricing of the security and the occurrence of it results in the halt of the market and only continues when it gets stable.

Causes of Flash Crash

? Flash Crashes are seen as market manipulation technique and considered controversial. It is assumed that it is also considered a result of an unavoidable statistical outlier. The flash crash causes are as follows:

? Human Error- The Securities Exchange Commission has seen the human error as a major cause of the problem. Traders have been seen to add extra zeros to their order or they are requesting large block order instantly in the market. ? Software Glitches- It happens when errors happen in the programming code. It also happens when there are discrepancies in the predicted data by the AI and the programs. ? Fraud-Fraud happens when Spoofing takes place. “Spoofing” is a term, which is placing large block sell orders which are meant to get canceled when the price draws near. ? High-Frequency Trading-It is the use of algorithms and high-end systems to predict the market and invest accordingly. It is considered illegal and not supported by major economies. One cannot predict the major cause of Flash Crash as each occurrence is unique in itself and is contributed by various factors. Global Flash Crashes

2017 Ethereum Flash Crash On 22nd June 2017 saw a drop of price Ethereum from approx. $300 to $0.10 in minutes at Coinbase Exchange, San Francisco. The reason behind was due to the selling of multi-million order. This resulted in the crashing of the market and lowering in the price of Ethereum.

British Pound Flash Crash On 6th October 2016, British Pound saw a decline of 6% against U.S. Dollar in 2 minutes. The main reason was due to a fat-finger error, which is a human error caused by wrong typing in the algorithm code given as a reaction to the Brexit.

NYSE Flash Crash On 6th may,2010 due to a trade of $4.1 Billion resulted in the crashing of NYSE and resulted in a 1000 points degradation in Dow Jones Industrial Average. The main reason for the crash was spoofing and manipulation by Navinder Singh Rao, a trader in NYSE.

Indian Market Flash Crash

On 21st September 2018, there was a 1000 points plunge in the SENSEX in the afternoon trade time. The cause discovered was the major selloff in NBFCs, which was led DHFL which hampered about 50% of liquidity in the market. The result was a down of 1127.58 points (3.03%) and SENSEX hit a low of 35,993.64. The day finished at 36,858.23 points.

In order to save economies from the Flash Crash and sudden halt of money, many countries have installed ‘Circuit Breakers’ in the system, so that the trading can halt at the break of Flash Crash, thus resulting in a minimum loss.

In the coming times, the growth of technology has given anxiety to traders. Thus, there should be a regulatory intervention and formation of policies, which can safeguard the money of the investors.