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Protection During a Liquidity Crisis like the Flash Crash
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Protection During a Liquidity Crisis like the Flash Crash

  #11 (permalink)
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Quite some difference between the Aug of 2015 and the flash crash.

Flash crash had liquidity disappear. This will only happen when the big players are totally gone from the markets.

Having a system which alerts of liquidity gone from various markets will alert one from a flash crash is what I firmly believe.

Cheers

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  #12 (permalink)
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Both the FC day and 8/24 were low liquidity - peak volume days far and wide. So the "big guys" certainly weren't
absent since a herd of retail sheep neither creates volume nor liquidity. The point is when market participants
enter the DOM.

In that sense the only major difference between 8/24 and the FC were the circuit breakers. During the FC
the prices just plopped through an empty DOM without pause while market makers etc withdraw according
to the old catastrophic event rules. So many assets only found a bottom at the stub limits before any interest
appeared.

On 8/24 the circuit breakers did what they were supposed to do and created pauses in which market makers,
specialists, and other participants refilled the bid/ask, i.e.: created liquidity. As soon as the DOM was back at the
officially required level, the trading continued up to the next circuit breaker. And so on down to the halt for several
minutes right before the RTH opening.

So 8/24 was "more liquid" under compulsion, but trading continued.
Did that prevent massive losses in many assets? Certainly not.

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  #13 (permalink)
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As far as i am concerned. As soon as liquidity starts to dry....the big boyz are off the table. I maybe wrong.

hey thanks for the points of view. I wont go against it on a public forum and respect your comments.

my main point was to try pick up any points on how to protect on days such as FC...as am Risk averse. And thats what am always working towards.

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  #14 (permalink)
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However my main question stemmed from if there are folks in here who have certain systems/capabilities in place to figure out across a large section of instruments when there is a Cross of NBBO or the Spreads do not make sense, etc etc which may help avoid certain situations. However maybe there are ways if one can monitor not only instruments but their correlations across Exchanges, also events of Bid/Ask and Price ... and well if not....its hard to understand these events is what i gather.

have always found food for thought & amazing insight of market structures and inner inter workings in Eric's papers @nanexllc since it gives retail atleast some thoughts to try and process what happens in markets

just a few of them here
http://www.nanex.net/FlashCrashFinal/FlashCrashSummary.html
http://www.nanex.net/FlashCrash/CCircleDay.html

also a few other articles
http://arxiv.org/pdf/1211.6667.pdf
http://utminers.utep.edu/jeupson/pages/Flash.pdf


Last edited by paps; March 20th, 2016 at 08:52 PM.
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