In the financial world, high-frequency trading has become the new norm. By using trading algorithms and dedicated tools, stock market players can execute trades in milliseconds. The ultimate goal is to increase profits in a near-automated way. However, there have been some notable issued with high-frequency trading in the past, all of which have caused significant financial losses in the process.
- 2010 FLASH CRASH
Although flash crashes are nothing new in the world of finance and trading, 2010 stands out as a peculiar year. On May 6 of 2010, the US stock market crashed and remained inaccessible for a total of 36 minutes. All stock indexes collapsed and rebounded in quick succession. This day marks the second-largest Intraday point swing recorded up until that moment.
The cause of this crash took some time to pinpoint. As it turns, high-frequency trading algorithms were driving the bids on dozens of ETFs and other stocks as low as one penny per share. Navinder Singh Sarao was eventually convicted for his role in the 2010 flash crash, as he used a spoofing algorithm to cause the crash. He set up thousands of futures contracts, which were refreshed roughly 19,000 times before eventually getting canceled. It is this type of high-frequency trading algorithm that caused the brief crash.