By Roberto PedoneWINDERMERE, Florida ( Stockpickr) -- The term "flash crash," evokes fear in the minds of many investors. We all remember May 6, when the entire U.S. stock market experienced that dreadful flash crash. That day was scary, to say the least, with the Dow Jones Industrial Average plunging 600 points only to recover those losses in 10 minutes. It was the second largest point swing, 1,010.14 points, and the biggest one-day point decline, 998.5 points, on an intraday basis in the Dow Jones Industrial Average history. Congress and the Securities and Exchange Commission still haven't figured out what exactly caused the crash. Market participants have speculated about a number of likely theories, such as a fat finger trader error or abuses from high-frequency traders. High-frequency trading, also known as algo trading, black-box trading or robo trading, uses computers to make elaborate decisions to initiate orders based on information that is received electronically, before human traders are capable of processing the information they observe. The high-frequency traders seem to be the most likely culprits. One theory is that a large number of HFTs decided to pull their orders off the market, creating a transaction vacuum in which liquidity was removed. And since the HFTs now make up over 70% of the daily market volume, this theory makes a lot of sense. Once all the HFTs pulled their orders, it made it very easy for some fast hedge fund traders to simply blast the market with bearish bets on futures, EFTs and equities. Considering how much the U.S. stock market has been weakening of late, could another major flash crash be right around the corner?
|More on Stockpickr|
|More on Apple|
Twitter and become a fan on Facebook.