# The 2010 Flash Crash

> On 6 May 2010, US stocks plunged and rebounded within about 36 minutes. Learn what happened, the role of a large futures sale and HFT, and the rules that followed.

Source: https://learn.tradelabsai.com/history/the-2010-flash-crash/  
Track: Market History · Level: Beginner · Updated: 2026-10-03  
Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice.  
Cite as: TradeLabs Learn, "The 2010 Flash Crash", https://learn.tradelabsai.com/history/the-2010-flash-crash/

On the afternoon of 6 May 2010, US stock markets suffered one of the fastest crashes in history. Within minutes, major indices fell around 9%, briefly erasing close to $1 trillion of market value, and then recovered most of the loss. Some stocks traded at absurd prices, as low as one cent, while others printed at $100,000 a share. The Flash Crash exposed how fragile liquidity can be in fast, fragmented, electronic markets and led to new safeguards such as single stock circuit breakers.

## What happened

| Time (Eastern) | Event |
|---|---|
| Morning | Markets are nervous amid the European debt crisis. See [The European Debt Crisis](https://learn.tradelabsai.com/history/the-european-debt-crisis/) |
| About 2:32 pm | A large sell program in E mini S&P 500 futures begins |
| 2:32 to 2:45 pm | Futures and stocks fall rapidly; liquidity thins dramatically |
| 2:45:28 pm | The CME's stop logic pauses E mini trading for 5 seconds |
| 2:45 to 3:00 pm | Prices recover sharply, but individual stocks and ETFs trade at extreme prices |
| By about 3:08 pm | Most prices have recovered to near pre crash levels |

The Dow Jones Industrial Average fell nearly 1,000 points intraday, about 9%, before closing down about 3%.

## The causes, according to regulators

The joint SEC and CFTC report published in September 2010 described a chain of events:

1. **A large fundamental trader** began selling 75,000 E mini contracts, worth about $4.1 billion, using an algorithm that targeted a share of trading volume without regard to price or time.
2. **High frequency traders** initially bought, then quickly sold to each other and back into the market, generating huge volume. See [High-Frequency Trading](https://learn.tradelabsai.com/algo-trading/high-frequency-trading/).
3. **Because the algorithm sold more as volume rose,** the surging volume accelerated its selling.
4. **Liquidity evaporated:** many market makers withdrew or widened quotes dramatically.
5. **Stub quotes,** placeholder orders at absurd prices like $0.01, were executed when no other orders remained. See [The Order Book and Market Depth](https://learn.tradelabsai.com/market-structure/the-order-book-and-market-depth/).

**Example: A volume targeting algorithm in a panic**
An algorithm is set to sell a large order at 9% of the market's traded volume. In normal conditions, volume of 100,000 contracts in a few minutes means it sells 9,000. In the crash, high frequency traders pass contracts back and forth, so volume jumps to 500,000 in the same time, and the algorithm sells 45,000, five times faster, into a market where real buyers have vanished. Targeting volume without a price limit turned an execution tool into an accelerant. See [VWAP, TWAP and POV Execution](https://learn.tradelabsai.com/orders/vwap-twap-and-pov-execution/).

## Spoofing and Navinder Sarao

In 2015, US authorities charged Navinder Sarao, a trader in London, with spoofing E mini futures, including on the day of the Flash Crash. He pleaded guilty in 2016. Prosecutors argued his activity contributed to market conditions that day; the original regulatory report focused on the large sell program and liquidity withdrawal. See [Spoofing and Layering](https://learn.tradelabsai.com/industry/spoofing-and-layering/).

## Rules that followed

| Change | Purpose |
|---|---|
| Single stock circuit breakers, later Limit Up Limit Down | Pause trading in individual stocks that move too far, too fast. See [Trading Halts and Circuit Breakers](https://learn.tradelabsai.com/markets/trading-halts/) |
| Clearly erroneous trade rules | Clearer criteria for cancelling trades at absurd prices |
| Ban on stub quotes | Market makers must quote within a reasonable range of the market |
| Market access rule (Rule 15c3 5) | Pre trade risk controls for firms with market access. See [Risk Controls and Kill Switches](https://learn.tradelabsai.com/algo-trading/risk-controls-and-kill-switches/) |
| Consolidated Audit Trail | Better data for reconstructing events. See [Logging, Audit Trails and Incident Response](https://learn.tradelabsai.com/algo-trading/audit-trails/) |

## Lessons for traders

1. **Liquidity can disappear in seconds,** especially when everyone wants to sell. See [Liquidity Risk](https://learn.tradelabsai.com/portfolio/liquidity-risk/).
2. **Stop orders become market orders** and can fill at terrible prices in a flash crash. See [Stop-Limit Orders](https://learn.tradelabsai.com/orders/stop-limit-orders/).
3. **Execution algorithms need price limits** and safeguards.
4. **Displayed depth is not guaranteed.** See [Market Data Levels: Level 1, 2 and 3](https://learn.tradelabsai.com/programming/level-2-data/).
5. **Some trades were cancelled,** but not all; traders bore real losses.

## Sources

- SEC and CFTC, "Findings Regarding the Market Events of May 6, 2010": https://www.sec.gov/news/studies/2010/marketevents-report.pdf

## Frequently asked questions

### What was the 2010 Flash Crash?

A sudden collapse and recovery in US stock prices on 6 May 2010, when major indices fell about 9% within minutes before rebounding.

### What caused the Flash Crash?

Regulators pointed to a large automated futures sell order interacting with high frequency trading and a sudden withdrawal of liquidity; a trader was later convicted of spoofing that contributed to conditions.

### Could a flash crash happen again?

Smaller flash events have occurred since, but safeguards such as Limit Up Limit Down halts now reduce the chance of extreme prices in individual stocks.

Next, learn about the crisis that troubled Europe in [The European Debt Crisis](https://learn.tradelabsai.com/history/the-european-debt-crisis/).

## Continue learning

- Next lesson: [The European Debt Crisis](https://learn.tradelabsai.com/history/the-european-debt-crisis/)
- Previous lesson: [The 2008 Financial Crisis](https://learn.tradelabsai.com/history/the-2008-financial-crisis/)
- Related: [The 2008 Financial Crisis](https://learn.tradelabsai.com/history/the-2008-financial-crisis/): The 2008 financial crisis grew from a US housing bubble into a global banking panic. Learn the causes, the collapse of Lehman Brothers, the response and the lessons.
- Related: [High-Frequency Trading](https://learn.tradelabsai.com/algo-trading/high-frequency-trading/): High frequency trading uses extreme speed to trade huge volumes for tiny profits per trade. Learn the main HFT strategies, the technology and the criticisms.
- Related: [Spoofing and Layering](https://learn.tradelabsai.com/industry/spoofing-and-layering/): Spoofing and layering use orders placed with no intent to execute to trick other traders. Learn how they work, how they are detected, key cases and the law.
- Related: [Trading Halts and Circuit Breakers](https://learn.tradelabsai.com/markets/trading-halts/): Trading halts pause a stock or a whole market. Learn why halts happen, how US circuit breakers and limit up limit down bands work, and what they mean for you.
- Related: [Liquidity Risk](https://learn.tradelabsai.com/portfolio/liquidity-risk/): Liquidity risk is the danger of being unable to trade quickly at a fair price, or running short of cash. Learn its two types, how to measure it and controls.
- Related: [Black Monday 1987](https://learn.tradelabsai.com/history/black-monday-1987/): On 19 October 1987 the Dow fell 22.6% in a single day. Learn what caused Black Monday, the role of portfolio insurance, the Fed's response and its lasting legacy.