What Is a "Flash Crash" and How Does It Exemplify Extreme Slippage? ⎊ Path

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.

What Is the Primary Difference between a “Market Order” and a “Stop Order”?

Why Are ‘Stop-Loss’ Market Orders Particularly Susceptible to High Negative Slippage?

What Is the Difference between Market Orders and Limit Orders in the Context of the Spread?

Does Slippage Only Occur on Stop-Loss Market Orders, or Also on Limit Orders?

What Is the Difference between an ‘Active’ and ‘Passive’ Order in the Context of Market Making?

Explain the Role of “Stop-Loss Hunting” in Exacerbating a Flash Crash

What Is the Difference between “Market Order” and “Limit Order” in the Context of Derivative Exchanges?

How Can a Trader Use an “Immediate-or-Cancel” (IOC) Order to Limit Exposure during a Flash Crash?

Glossar

Flash Crash

Phenomenon ⎊ A flash crash is a market phenomenon characterized by an extremely rapid, deep, and short-lived decline in the price of a cryptocurrency or derivative contract.

Extreme Volatility

Momentum ⎊ Within cryptocurrency derivatives and options trading, extreme volatility manifests as a rapid and sustained acceleration of price movements, often exceeding historical ranges and predictive models.