Flash crash

A flash crash occurs when an asset's price plummets dramatically in a very short timeframe, typically minutes, before swiftly rebounding. This phenomenon is often triggered by large, automated sell orders interacting with thin market liquidity. Algorithmic trading systems can create a cascading effect, where one sale triggers others, leading to a rapid, steep decline in price that then quickly corrects.

For a retail trader, a flash crash presents significant risk due to extreme slippage. Stop-loss orders may not execute at the intended price, instead filling much lower, leading to larger than anticipated losses. This can result in rapid depletion of trading capital or even margin calls. Traders must acknowledge that such events, while rare, can bypass typical risk management measures.