What Is a “Flash Crash” and How Does It Exemplify Extreme Slippage?

A flash crash is a sudden, rapid, and significant drop in asset prices that recovers quickly. It is often triggered by algorithmic selling in a low-liquidity environment.

During a flash crash, market orders face extreme slippage because the thin order book is rapidly depleted, forcing execution at drastically lower prices before the market can stabilize. The difference between the pre-crash quoted price and the execution price is the extreme slippage.