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Explaining the October Flash Crash in the British Pound

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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.

GBP Flash Crash

In the aftermath of Brexit, the British pound has subsequently morphed into a “political” currency that seems to get most of its trading action based on commentary and speculation about the country’s eventual withdrawal from the EU.

On October 6, 2016, François Hollande said that the UK must “pay the price” for Brexit. Trading algorithms reacted to this news that they deemed to be negative, and it triggered a GBP selloff. Once a massive knock-out option was opened and a certain price broke, it triggered a number of automated stop-loss sellers.

After a few other algorithms kicked in, the British pound went from $1.26 to $1.1491 in a matter of just two minutes in USD terms. That’s a 8% slide in a globally significant currency.

Just 30 minutes later, the pound recovered to more normal trading levels.

The flash crash was just that – temporary. However, this does raise the question: what could have happened in a more extreme case of algos gone wild?

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Ranked: Top 10 Single-Day Market Cap Gains

Nvidia broke the record for the largest single-day market cap gains after adding nearly $250B on Feb. 22, 2024.

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The 10 Biggest Single-Day Market Cap Gains

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

Since the COVID-19 pandemic, U.S. tech stocks have led in terms of market cap gains, sometimes boosting their valuations by hundreds of billions of dollars in a single day.

In this graphic, we’ve ranked the largest single-day gains ever recorded, using data from Bloomberg.

Top 10 List

The top 10 list includes just 5 companies, and all are based in the U.S.

RankDateCompanySingle-day
Market Cap Gain
(USD billions)
1Feb 22, 2024NVIDIA$247.0
2Feb 2, 2024Meta$196.8
3Nov 10, 2022Apple$190.9
4Feb 4, 2022Amazon$190.8
5May 25, 2023NVIDIA$184.1
6Jan 28, 2022Apple$178.9
7Jul 31, 2020Apple$169.0
8Oct 28, 2022Apple$150.5
9Mar 13, 2020Microsoft$150.4
10Apr 26, 2023Microsoft$148.3

To put these massive gains into context, consider this: As of May 2023, the average market cap of an S&P 500 company was $30.4 billion.

Meta’s $197B Record Didn’t Last Long

On Feb 2. 2024, Meta set a new record for the largest single-day gain after reporting strong quarterly earnings, as well as announcing $50B in share repurchases and its first ever dividend payment.

This record lasted only 20 days, however, as Nvidia’s massive Q4 2024 earnings beat sent it to all-time highs. The firm is now nearing a $2T valuation, firmly placing it among the world’s most valuable corporations.

More on Nvidia’s Earnings…

Nvidia reported $12.3B in net income during Q4 2024, which is 769% higher than the same quarter last year. Revenues are also up 265% from last year, largely driven by demand for its AI chips like the H100 Tensor Core GPU.

Nvidia’s earnings have seemingly shifted the AI craze into another gear, boosting other chip stocks like AMD and Super Micro Computer (SMCI) to double-digit % gains for the day (Feb 22).

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