Flash Crash
A sudden, extreme market price decline occurring within minutes before prices rapidly recover.
What is Flash Crash?
A flash crash is a very rapid, deep decline in the price of a security or market index — typically measured in minutes — followed by an equally swift partial or full recovery, leaving little permanent price change but exposing fragility in market microstructure. Flash crashes are primarily driven by cascading algorithmic and high-frequency trading orders that amplify a small imbalance in supply and demand, exhausting available buyers and triggering a chain of automatic sell orders. The SEC has implemented circuit breakers and limit-up/limit-down bands to curb such events. The most prominent flash crash occurred on May 6, 2010, when the Dow Jones Industrial Average fell nearly 1,000 points in minutes before recovering almost entirely.
Example
On May 6, 2010, the DJIA fell nearly 1,000 points — about 9% — within minutes, briefly erasing nearly $1 trillion in market value before recovering by the close. The SEC investigation found that a single large futures sell order triggered a cascade of algorithmic selling across equity markets.
Source: SEC/CFTC Joint Report on the May 6, 2010 Flash Crash