23 May 2018
Visit www.fingerprints.com

Pragma Securities calls for FX market to adopt universal definition of a ‘flash crash’

07 December 2017  |  2045 views  |  0 Source: Pragma Securities

Pragma Securities (Pragma), a multi-asset quantitative trading technology provider, has published new research exploring the phenomenon of flash crashes in the foreign exchange (FX) market.

Flash crashes - sudden and dramatic ‘v-shaped’ price changes - have broken into the public consciousness over the past few years, with high profile events including the aftermath of Swiss National Bank unpegging the Swiss franc (CHF) in January 2015 and the sell-off in sterling (GBP) in October 2016.

Pragma’s research paper, entitled ‘Defining a flash crash’ provides a clear, objective definition and identifies the characteristics of a flash crash. Its criterion includes a large price move, strong reversion, and widening spreads. Using this definition and tick-by-tick analysis of data from 11 currency pairs, the paper identified more than 97 similar, albeit smaller, events during 2015 and 2016.

The note asserts that flash crashes are usually triggered when liquidity providers can’t keep up with sudden demands of heavy but informationless directional volume. By contrast, market moving news and events may cause sudden changes in price, and spikes in volatility and spreads, but they should not considered to be a ‘flash crash’. In such events, the price generally does not revert but converges to a new level, reflecting the new information absorbed by the market.

David Mechner, CEO of Pragma Securities, comments, “This note is part of our ongoing research effort. We use quantitative tools to understand market microstructure, both to help us deliver the highest quality trading tools to our clients, and to contribute to industry dialog about market structure.

“Writing on flash crashes in FX has, to date, tended to the anecdotal, looking at individual events in isolation. We took a more systematic approach, and came up with an index that could help regulators, trading institutions and individual market participants track market quality.”

Comments: (0)

Comment on this story (membership required)

Related company news


Related blogs

Create a blog about this story (membership required)
Visit http://go.jumio.com/finextraAd

Top topics

Most viewed Most shared
PayPal agrees $2.2 billion deal for iZettlePayPal agrees $2.2 billion deal for iZettl...
9916 views comments | 16 tweets | 28 linkedin
BBVA begins global roll-out of unified mobile appBBVA begins global roll-out of unified mob...
8726 views comments | 6 tweets | 5 linkedin
Japanese banks join quantum computing hubJapanese banks join quantum computing hub
7385 views comments | 8 tweets | 5 linkedin
SEC lures wannabe crypto investors with fake ICO siteSEC lures wannabe crypto investors with fa...
6901 views comments | 7 tweets | 11 linkedin
Digital banking transformation creating new systemic risksDigital banking transformation creating ne...
6638 views comments | 17 tweets | 22 linkedin

Featured job

Find your next job