Stability heightens flash crash risks – research
Liquidity breaks down when latent orders are revealed too slowly, quant firm says
Flash crashes are most likely to occur in stable markets when latent liquidity converts to real orders too slowly, new research from quants at Capital Fund Management suggests.
The firm’s research is based on the idea that live prices in an order book represent only a fraction of the liquidity in markets. A much larger layer of latent liquidity – potential bids and offers – exists outside the order book and is only revealed as prices move around.
“The markets are like huge icebergs of
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