Infographic: The October Flash Crash in the British Pound

The Visual Capitalist chronicled the recent crash in British Pound through an infograph. They write:

We all know that software is eating the world.

For better or worse, that statement applies to the financial world as well. It is said today that 75% of all financial market volume is automated, though there are lower and higher estimates out there depending on the report.

The bottom line is that algorithmic trading is the dominant market player – and this has benefits and drawbacks for average investors. On the upside, markets are less volatile and presumably more rational because they are driven by computers instead of fallible humans.

On the other hand? Sometimes algos just go rogue and do something unpredictable.

When the British pound flash crashed earlier this month, it was exactly this latter thing that happened.

EXPLAINING THE OCTOBER FLASH CRASH IN THE BRITISH POUND

The following infographic from Top 10 Forex VPS shares a play-by-play breakdown of how the British pound crashed a whopping 8% in just two minutes.

It’s interesting because it helps give a sense of how the piping works behind these trading algorithms. It’s also a cautionary tale of algos gone wild, showing how market momentum can be swung in a particular direction even without your average market participants being involved

While the infographic rationalizes the GBP's flash crash as mainly a combination of algorithm and "Brexit" in the below infographics, there must be more than meets the eye.

First, the infographic, then my comment after...
 

Courtesy of: Visual Capitalist

It's not  just the GBP, even the yuan has been significantly dropping. Currency turmoil has emerged around the world. 

Besides, the GBP's flash crash must not be seen in isolation, accounts of flash crashes seem to be crescendoing.

As I recently wrote in my prudent investor newsletter blog (closed to public)

Although one may posit that PBOC may have allowed the yuan fall, the yuan’s conditions seem to have even reflected on the British pound (GBP). The GBP experienced a flash crash last October 7 (Investopedia October 7). Apparently, the flash crash wasn’t an anomaly because the British pound fell by another 2% this week. Against a basket of currency, the British pound has fallen to 168 year lows (Irish Times October 12)!

And as I have noted here, rising accounts or frequency of amplified volatility has metastasized into a global financial trend. [Phisix 7,100: 2Q GDP Hype, One Day Crashes Have Hardly Been Isolated Events August 31, 2015]

ONE day panics have not usually signified an isolated incident.

One day panics are usually followed by another crash, or a string of crashes or by an eventual weakening or a combination thereof.

A Bloomberg article enumerates some of the recent crashes (October 7): May 6, 2010: U.S. Stocks, Oct. 15, 2014: U.S. Treasuries, Aug. 24, 2015: U.S. Stocks, Aug. 25, 2015: New Zealand Dollar and May 31, 2016: China Index Futures.

The roster excludes crashes by the Swiss stock market (January 2015) as consequence to the unpegging of the euro-swiss franc (BBC January 2015), as well as the stock market crash in Thailand (December 2014).

The point here is that the growing frequency of financial market tremors seems likely to prognosticate the imminence of a major global financial market earthquake…sooner than later.