How markets work
Flash crash
A very sudden, very deep price fall that reverses almost as quickly.
How it works
Flash crashes happen when automated liquidity withdraws at once, leaving orders to execute against a nearly empty book at absurd prices before the market repairs itself.
They are the clearest demonstration that displayed liquidity is conditional. It exists until it is needed.
Where it misleads people
A market order or a stop order caught in a flash crash can fill at a price that made no sense and stands anyway. This is the single strongest argument for limit orders on illiquid securities.
Related terms
- Circuit breakerAn automatic pause in trading, triggered when prices move too far too fast.
- LiquidityHow quickly you can turn something into cash at a fair price, without moving the price against yourself.
- Market orderAn instruction to trade immediately at the best price currently available, whatever that is.
- Stop orderA dormant order that becomes a market order once the price passes a level you set.
- High-frequency tradingAutomated trading that competes on speed, holding positions for fractions of a second.
More in How markets work
All 33 How markets work terms · The full glossary, 433 terms
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