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How Does a Flash Crash Affect the Relationship between Volume and Spread?

During a flash crash, prices plummet rapidly, often triggered by automated selling or a sudden shock. This event is characterized by extremely high, panic-driven volume.

However, the bid-offer spread widens dramatically because market makers temporarily withdraw their bids or widen them severely due to extreme risk and uncertainty, leading to a temporary collapse of liquidity despite the high volume of transactions.

What Is the Role of a ‘Market Maker’ in Reducing Slippage on an Exchange?
Does the Bid-Offer Spread Change Depending on Market Volatility?
What Market Event Typically Causes the Volatility Skew to Steepen?
What Role Do Market Makers Play in Setting the Bid-Offer Spread in a Volatile Options Market?