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.
Watch More of the Latest Videos on TheStreet and Jim Cramer
- From the C-Suite: Crunch Fitness CEO: We Had an Emergency Plan, Why Didn’t the Government?
- NCAA Considers Proposal That Would Allow Student-Athletes to Get Paid for Endorsements, Etc
- Professional Athletes in Business: NBA Hall of Famer David Robinson Says Teamwork is Recipe for Success
- Ask Bob: I Was Furloughed. Under the CARES Act, Do I Still Need to Pay My 401(k) Loans?
- Jim Cramer's 5 Books to Read During the Coronavirus Pandemic