The 2010 Dow Flash Crash
https://www.thebalance.com/what-is-a-flash-crash-3306184
This articles’ focus is on flash crashes. It discusses what a flash crash is in the stock market and lists a bunch of the biggest flash crashes along with their causes and effects. Basically, the biggest investors in the stock market use computer algorithms to buy, sell, and trade stocks. These computers take in an enormous amount of data per second into their algorithms to make these investors money. So, if there is a delay in the infrastructure in place that makes these transactions, even by a thousandth of a second, huge amounts of money can be lost, and those small delays can have huge cascading effects on the market.
The flash crash I found most interesting in this article was the 2010 DOW Flash Crash. This crash seemed unique in that it happened SO suddenly, was over just as fast, was sparked by something seemingly miniscule, and had an enormous impact. In short, someone in London bought and sold a lot of stocks in a very short amount of time. This is called “spoofing” and is technically illegal because it unfairly manipulates the market for the benefit of the “spoofer.” When the financial firm Waddell & Reed saw this, they dumped over four billion dollars worth of the spoofed stocks. This, paired with a very, very, very short delay in the DOW computer systems (discussed in the YouTube video linked below) caused mayhem in the market algorithms, causing the DOW to drop 1,000 points in under ten minutes, and costing investors around one TRILLION dollars in equity.
I thought this would be really interesting to discuss here, because the stock market is a network of investors who are constantly trading back and forth, and the market seems to reflect how “healthy” the economy, or trading environment is at a given point in time. Plus, as we’ve seen in class, sometimes small changes to a network can have a huge affect on the entire network, and this crash is definitely a clear cut example of that.
If you’re interested in learning more about the 2010 DOW Flash Crash and the huge infrastructure behind the stock market, this ~50 minute documentary is really informative and interesting:
https://www.youtube.com/watch?v=aq1Ln1UCoEU