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GBP Flash Crash 7th of October, 2016

By October 8, 2016FX Trading, Opinion

How this happen to a major currency pair in a mature market in 2016.

Complacency, that’s how.

In the period in between NY close and Asia open proper, there was a distinct lack of buy orders placed in the GBP across the various electronic platforms. Liquidity was virtually zero. The buyers were no match for the sellers. It didn’t help matters when the market is nervous due to ongoing negativity and uncertainly over Brexit.

Enter the “Algorithmic Traders”. Electronic systematic traders, sometimes referred to as “black box” traders are programmers dressed as traders. These automatic traders chase the best bids and offers in the markets. Occasionally, when is little liquidity in the market “the Algos” chase the market down or up, in this case down causing a “Flash Crash”

The sterling traded from 1.2600 to 1.1800 in minutes.

Stop sell orders were triggered initially to 1.2200 where the first pocket of liquidity/buyers was found. Between 1.2200 and 1.1850, 4 billion GBP traded hands.

The commentators are screaming for an investigation, and regulation. Too late boys and girls. It’s history now.

My workshop will teach you when to stay out of vulnerable currencies pairs and markets and the reasons why.

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Adrian Jones

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