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Flash crash on the franc: only an accident or the consequence of the automatic exchange?


The Frenchman took the dollar tonight to repair the development immediately. What was the cause and how dangerous is this flash?

Michael Ferber

An unfortunate entry dealer triggered a small crazed fall in the night of Monday in Asia. Foreign currency experts have clearly expressed their views, but are worried about the more frequent events.

«Typical slip»

In a few minutes, around 7:00 am in Tokyo, the franc fell against a dollar from 1,000.4 to 1,0096, which is the lowest level since November. Shortly thereafter the opposite movement occurred and the ratio of the rates was approximately at the same level as before. This was "a typical slip," said Thomas Flury, global currency strategy at UBS. After that, the price was close to the price before the collision, and other markets were not affected.

According to Flury, the flash is probably based on an accident, which, fortunately, does not have serious side effects at the moment. An accidental deal by the trader, which triggered a series of automatic reactions, was probably the beginning. The holiday in Japan was rated as a support to the movement, because at that time there were few agents on the trading platforms.

Low liquidity

Gero Jung, chief economist at Bank Mirabaud Bank, believes that liquidity on the market should be very low during a blast. According to him, the recent move is due to the foreign exchange market microstructure. The stop-loss movement of the big investor triggered, along with the algorithmic trading of securities.

More frequent flashlights

On the positive side, the market quickly corrected the latest flash, says Thomas Stucki of the Cantonal Bank St. Galler. On the other hand, it would be disadvantageous for such flash disasters to emerge again in financial markets. It is also responsible for the low liquidity of the market at that time and the increased amount of automated trading through computer programs. One of the big dangers of fractures was that they weakened confidence in financial markets.

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