What is a flashcrash?

"Flashcrash" is a term that refers to a sudden, very rapid drop in prices on the financial markets. This phenomenon can lead to a sharp fall in stock market indices within a very short timeframe, often within minutes. A well-known example is the event of 6 May 2010, where the Dow Jones Index on Wall Street fell by 9% in a few hours, resulting in the loss of 999 points, the largest absolute decline ever at that time.

Causes of a flash crash can vary, but they are often attributed to automated trading algorithms, 'high frequency trading', erroneous transactions (such as a 'fat finger' - input error), or large market-order sell orders. These computer-controlled transactions can quickly set off a chain reaction of price drops, causing the market to fluctuate sharply within moments.