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Similarly, avoiding securities with high flash crash risk can deliver considerable performance improvement.
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That seems to have been what happened during the flash crash: high-frequency trading didn't start the snowball rolling, but it helped turn it into an avalanche.
It is indeed better to be safe than sorry, especially when the probability of an impending flash crash is high.
The firm's next interaction with the SEC came a few months before the 2010 flash crash, when high-speed trading came under regulatory scrutiny.
But they, too, depend on being able to trade with the dealers: if liquidity dries up, the high-frequency traders will also become less active.The authors say that the disappearance of high-frequency traders during the flash crash was most obvious in the world of exchange-traded funds (ETFs).
But ETFs were among the most illiquid assets during the flash crash, suggesting that high-frequency traders had pulled back from this market.All this can happen very rapidly, as the flash crash demonstrated.
And, maybe more damaging to long-term investor confidence, the stock suffered from technological glitches on its first day of trading on the Nasdaq, glitches that had some hallmarks of the Flash Crash two years earlier, including high-speed trading that pushed the financial system to the breaking point.
The last time volatility was this high was last June, shortly after the flash crash.
A flash crash is a super-high-percentage move.
Although a subsequent investigation by the SEC cleared high-frequency traders of directly having caused the Flash Crash, they were still blamed for exaggerating market volatility, withdrawing liquidity for many U.S.-based equities (Lewis 2014).
And who can forget the sudden "flash crash" of the market caused by high speed trading algorithms in 2010.
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