The US and European stock markets suffered a micro flash crash on Tuesday. Is this something that I should worry about as an investor? And will it affect FTSE 100 stocks?
What is a flash crash?
When the stock markets are open, buyers and sellers are constantly trading equities. This includes retail investors, institutional investors, and hedge funds. Nowadays this happens too quickly to comprehend, large numbers of orders take place in fractions of a second. One branch of this is known as high-frequency trading. Powerful computers make the trades, and as prices fluctuate, they’re actioned depending on pre-determined instructions and market conditions. A flash crash is when prices dip exponentially low for a short period.
How does a flash crash happen?
A discrepancy in high-frequency computer trading leads to a sudden influx of sell orders, which rapidly magnifies price drops causing a flash crash. As the prices dramatically decline, … Read more