3 ms·
Markets have intrinsic damping - long term traders. If you didn't believe that Accenture was really worth $0.03/share during the flash crash, you could come in
by yummyfajitas 12y ago
Markets have intrinsic damping - long term traders. If you didn't believe that Accenture was really worth $0.03/share during the flash crash, you could come in and buy it up for cheap, then make a huge profit after the flash crash resolved (in the unlikely event your trades weren't broken [1]).
In short, the damping mechanism in markets is that anyone who believes the price is wrong can come in, buy/sell/short and push markets back to the right place. Which is exactly why the flash crash fixed itself. I know a human trader who missed the entire flash crash due to an ill timed bathroom break.
[1] US markets will retroactively break "clearly erroneous trades".
- egwor 12y agoexcept that you risk having all of your trades busted as off market....
- yummyfajitas 12y agoThat is a risk if you buy low and sell high, but if you buy and hold for a few days it's pretty safe. Worst case you lose buying power for a short time. But you are right that regulators (not sure if breaking trades is an exchange or SEC thing?) do reduce this natural damping factor.