Which 1987 trading practice was widely blamed for amplifying selling during the Black Monday crash?

Portfolio insurance was the 1987 trading practice widely blamed for amplifying selling during the Black Monday crash.

Portfolio insurance used computer-based strategies to reduce exposure as markets fell. A common approach involved selling stock-index futures after declines, with the goal of limiting losses in a falling market. When many investors followed similar rules, their trades could reinforce downward price movements.

During the October 19, 1987, collapse, liquidity became extremely thin and selling pressure spread between futures and cash markets. The strategy was not the sole cause of the crash; high valuations, interest-rate concerns, trade tensions, and market-structure problems also mattered. Later research has debated how much portfolio insurance contributed.

The episode changed thinking about automated trading and market safeguards. Authorities introduced coordinated circuit breakers and other procedures intended to slow disorderly declines. Modern algorithmic trading is broader than 1980s portfolio insurance, so the two terms should not be treated as synonyms.