The Flash Crash
2 min
On May 6, 2010, the Dow Jones Industrial Average dropped nearly 1,000 points in minutes, then recovered almost as quickly. This 'Flash Crash' wiped out roughly $1 trillion in market value in under 10 minutes. The cause: algorithmic trading systems feeding on each other's sell signals in a cascading loop. It was a wake-up call about the power and danger of AI in financial markets. Today, algorithmic trading accounts for over 70% of all stock market volume. AI systems execute trades in microseconds, analyze satellite imagery to predict retail earnings, parse social media sentiment to front-run market moves, and use reinforcement learning to develop strategies that no human trader could conceive. The profits are enormous. Renaissance Technologies' Medallion Fund has returned an average of 66% annually before fees since 1988, powered entirely by mathematical and AI models.
When AI trading goes wrong, markets can move billions in milliseconds.