What event caused the 2010 Flash Crash, when U.S. stock indexes plunged within minutes?
Answer
A large sell order
A large sell order helped cause the 2010 Flash Crash, when U.S. stock indexes plunged within minutes.
On May 6, 2010, the Dow Jones Industrial Average dropped nearly 1,000 points, or about 9%, before recovering much of the loss. A trader at Waddell & Reed entered a large automated sell order for E-mini S&P 500 futures, using an execution algorithm that did not account for prevailing price or volume conditions.
High-frequency traders and other automated systems interacted with the order in an already stressed market. Liquidity vanished in some securities, producing extraordinary price moves, including temporary trades at implausibly low levels. Investigations concluded that the large order was a major catalyst, not the only condition involved.
The episode led regulators and exchanges to introduce safeguards such as circuit breakers and limit-up/limit-down rules. It is often incorrectly described as a conventional economic crash or a confirmed cyberattack.