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Jim Cramer on the Flash Crash 10 Years Later

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What is the flash crash?

On May 6, 2010, the Dow was already down on the day on worries about the debt crisis in Greece. And then, at 2:42 p.m., the equity market began to fall rapidly, with the Dow dropping over 800 points in 5 minutes for a loss of nearly 1,000 points for the day by 2:47 p.m. 

TheStreet’s founder Jim Cramer was on air on CNBC when the drop happened.

The spark of this particular crash came down to one British trader named Navinder Singh Sarao, dubbed the ‘Hound of Hounslow.’ Sarao was convicted after pleading guilty to charges of spoofing and market manipulation in 2016. Sarao allegedly used an automated program to generate large sell orders, pushing down prices, which he then cancelled to buy at the lower market prices. The rapid decline in price triggered large numbers of automated trading to take place as prices broke through predetermined thresholds.

A joint SEC/CFTC report portrayed a market so fragmented and fragile that a single large trade could send stocks into a sudden spiral.

Watch the full video above for Jim Cramer's biggest lesson from the flash crash and how it applied to the market’s reaction to the coronavirus pandemic.

Want to know what Cramer and his team at Action Alerts PLUS are thinking about the markets and the stocks they're watching? Sign up on Action Alerts PLUS for more.

Cramer and the team are weighing in on what members need to know about the coronavirus pandemic's impact on the market. Cramer and his team will be hosting a live monthly conference call on Thursday, May 14.

You can follow Jim Cramer and Katherine Ross on Twitter at @JimCramer and @byKatherineRoss. Read more from Katherine Ross here.

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