Splash Crash


DEFINITION of 'Splash Crash'

A hypothetical, more intense version of the flash crash that occurred on May 6, 2010, when the Dow Jones Industrial Average suddenly dropped by almost 1,000 points then recovered about 600 points within minutes. A splash crash is an extreme version of the flash crash which hypothetically would affect not just the equities markets, but also splash over into forex, commodities, bonds and other asset classes.

BREAKING DOWN 'Splash Crash'

The idea is that because of the interconnectedness of the financial markets and the use of high-speed trading platforms, a huge drop in one market could affect other markets. A splash crash could freeze exchanges, cause market liquidity to spontaneously evaporate and have a long-term detrimental effect on investor confidence. Market surveillance and intelligent algorithms that detect and respond quickly to market irregularities attempt to ward off such events and minimize the damage, if they do occur.

  1. Stub Quote

    Order placed well off a stock's market price. Stub quotes are ...
  2. Flash Crash

    The quick drop and recovery in securities prices that occurred ...
  3. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock ...
  4. Circuit Breaker

    Refers to any of the measures used by stock exchanges during ...
  5. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) ...
  6. Regional Asset Liquidation Agreement ...

    An agreement between an asset manager and the Federal Deposit ...
Related Articles
  1. Mutual Funds & ETFs

    Did ETFs Cause The Flash Crash?

    On May 6, 2010, the DJIA plunged 998.5 points in twenty minutes. Find out more about what happened that day.
  2. Active Trading

    Connecting Crashes, Corrections And Capitulation

    Even though crashes, corrections and capitulations are bad news for investors holding the stock, there are still ways to profit.
  3. Forex Education

    October: The Month Of Market Crashes?

    In the finance world, October is a month to be feared, but is it justified?
  4. Active Trading Fundamentals

    The Fall Of The Market In The Fall Of 2008

    How did America's strong economy tumble so quickly? Find out here.
  5. Personal Finance

    The Crash Of 1929 - Could It Happen Again?

    Learn about the series of events that triggered the Great Depression.
  6. Investing

    Why Is Financial Literacy and Education so Important?

    Financial literacy is the confluence of financial, credit and debt knowledge that is necessary to make the financial decisions that are integral to our everyday lives.
  7. Economics

    Should the Fed Be More Worried About Asset Bubbles?

    While the Fed should be concerned that assets bubbles might impact economic stability, monetary policy is not the best tool to mitigate this threat.
  8. Stock Analysis

    Is the Stock Market Crashing? 5 Signs to Consider

    Learn about some signs of a potential stock market crash including a high level of margin debt, lots of IPOs, M&A activity and technical factors.
  9. Investing Basics

    3 Key Signs Of A Market Top

    When stocks rise or fall, the financial fate of investors change, as well. There are certain signs that can reveal a stock’s course, and investors don’t need to be experts to spot them.
  10. Professionals

    10 Must Watch Documentaries For Finance Professionals

    Find out about some of the best documentaries that finance professionals can watch to gain a better understanding of their industry.
  1. How reliable is the Fibonacci retracement in predicting stock behavior?

    The use of the Fibonacci retracement is subjective. There is no objective method to verify one application of the Fibonacci ... Read Full Answer >>
  2. How can a swing trader use a Fibonacci retracement?

    Swing traders can use the Fibonacci retracement to determine levels of support and resistance for a price on a chart, as ... Read Full Answer >>
  3. Do negative externalities affect financial markets?

    In economics, a negative externality happens when a decision maker does not pay all the costs for his actions. Economists ... Read Full Answer >>
  4. What is the difference between disposable and discretionary income?

    According to the Bureau of Economic Analysis, or BEA, disposable income is the amount of money an individual takes home after ... Read Full Answer >>
  5. How does a swing trader use the stochastic oscillator?

    The stochastic oscillator is a momentum technical indicator used to indicate points of possible price reversals. Swing traders ... Read Full Answer >>
  6. What are the major laws (acts) regulating financial institutions that were created ...

    Presidents George W. Bush and Barack Obama, in conjunction with Congress, signed into law several major legislative responses ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  2. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  3. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  4. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  5. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  6. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!