(Bloomberg) -- Flash crashes in the pound and Swiss franc have roiled the currency market in the last couple of years -- but there have been dozens of others that have gone under the radar.
Pragma Securities, a quantitative technology company that makes trading algorithms, says almost 100 flash events took place in the $5.1-trillion-a-day foreign exchange market in 2015 to 2016. In a new study, the company looked at tick-by-tick quotes for some of the world's most liquid currencies and came up with a definition for an FX flash crash: a large, rapid price move followed by a retracement, then a sudden and significant widening of the bid-offer spread.
“Extreme price moves are more common than we tend to think,” said David Mechner, Pragma's chief executive officer in New York. “There is a common belief that news events cause flash crashes; however, the research shows that flash crashes often appear without any significant market news.”
Pragma says its index tracks the data behind extreme events in a more systematic way, looking at the speed and magnitude of price moves, the reversion of prices to earlier levels and the widening of spreads. That approach contrasts with anecdotal analysis, which has blamed flash crashes on news headlines, banks or high-frequency traders pulling back from electronic markets, and even the juniorization of trading desks.
To contact the reporter on this story: Lananh Nguyen in New York at lnguyen35@bloomberg.net.
To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Greg Chang, Vivien Lou Chen
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