What Is a Flash Price?
The flash price provides as close to real-time price information as possible, with the understanding that there are always lags between price quotes and the actual traded price.
- The flash price provides as close to real-time price information as possible, but investors must realize that lags between price quotes and the actual traded price always exist.
- Flash prices are updated instantly for those with access to flash quotes.
How a Flash Price Works
Flash prices came into existence with the advent of computerized stock trading during the mid-1990s. Computer algorithms and online investing sites were important in the day trading boom that reshaped stock investing at the end of the twentieth century. Before these revolutionary changes, stock traders placed trades over the telephone with a stock broker, and the lag times in pricing were far greater than those made possible by the advent of computerized trading.
The new computerized trading platforms allowed more people than previously possible to participate in the stock market. In conjunction with online trading came the availability of sophisticated charting and analysis tools. The internet opened up a new world of online trading such that many more investors could participate, which meant higher volumes to be traded. Prior to 1996, stock prices shown on the stock ticker lagged 15 to 20 minutes behind the actual transaction. Real-time tickers were introduced in 1996 and played a key role in the increased popularity of day trading.
Tracking the increased volumes became an ongoing technological challenge. The rapid transactions created the need for computers to start prioritizing via algorithms which prices to display more prominently over others. The key variables for prioritization were unusually high volumes, dramatic price swings, and recent news of note. Ironically, the computerized prioritization rules feed into the increased visibility of a stock.
For example, elevating certain stocks to the real-time flash price ticker tape draws more immediate attention to that stock, with the possibility of increased volatility.
The Flash Price and Flash Crashes
During the early 2000s, technical stock analysts and software developers joined forces in seeking a new competitive advantage based upon high-speed trading. This new rapid computer-based trading capability allowed trades to be made more quickly than possible by the many other investors lacking real-time data. Instead of relying on human technical analysis, machine-based analysis came to the forefront.
One result of this new high-speed trading capability was the flash crash of May 6, 2010, when a rapid selloff in securities took place in a matter of minutes. The Dow Jones Industrial Average lost more than 1,000 points in a short period of time.
A flash crash happens so quickly it can overwhelm the circuits at major stock exchanges like the NYSE. Trading is halted while buy and sell orders are matched up in a more orderly way before trading resumes. These system-wide computerized flash crashes can cause widespread investor panic, as seen in the flash freeze of Aug. 22, 2013, which halted trading for three hours.