Flash Crash = Fat Cash

So, we all know Flash crash it. Ask anyone and the answer you are likely to get back is that it is something that goes wrong due to which stock price crash or increase significantly and reverse out at the same speed. Flash crash are usually due to erroneous trades or "Fat Finger errors" where trades that were not intended are released to the Stock exchange and executed.

But this discussion is not about why it happens, or what happens, but rather what are the consequences of it.
Three obvious consequences are as follows
1. Media enjoys it and publicises it a lot
Regulatory authorities jump in and probe about it.
3. The market participant involved usually has reputation loss or actual financial loss.

But, if there is some financial loss, then someone has gained from this. So, this is where the flash cash = Fat cash. If these erroneous trades are not reversed, then someone is really making a killing at the speed the other company is making losses.

With orders getting executed at the speed of clicks, it is no wonder that volatility is directly proportional to dealers carelessness or his greed for  trading profits.

At Riskpro, we encourage broking firms to put in controls that can prevent such losses due to trading errors. We can help companies built controls that can minimise such errors, if not eliminate all together. Please contact us at manoj.jain@riskpro.in for more details.