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posted on 15 November 2016

Infographic Of The Day: Explaining The October Flash Crash In The British Pound

We all know that software is eating the world.

For better or worse, that statement applies to the financial world as well. It is said today that 75% of all financial market volume is automated, though there are lower and higher estimates out there depending on the report.

The bottom line is that algorithmic trading is the dominant market player – and this has benefits and drawbacks for average investors. On the upside, markets are less volatile and presumably more rational because they are driven by computers instead of fallible humans.

On the other hand? Sometimes algos just go rogue and do something unpredictable.

When the British pound flash crashed earlier this month, it was exactly this latter thing that happened.

The following infographic from Top 10 Forex VPS shares a play-by-play breakdown of how the British pound crashed a whopping 8% in just two minutes.

It’s interesting because it helps give a sense of how the piping works behind these trading algorithms. It’s also a cautionary tale of algos gone wild, showing how market momentum can be swung in a particular direction even without your average market participants being involved.

[click here to enlarge infographic]

Source: http://www.visualcapitalist.com/october-flash-crash-british-pound/

Click here for Historical Infographic Post Listing



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