Explainer: the FX flash crash

Foreign exchange markets have experienced a mini-flash crash, sending waves through markets early on Thursday morning.

Foreign exchange markets have experienced a mini-flash crash, sending waves through markets early on Thursday morning.

The news is raw, but the series of events that precipitated has become vaguely established.

Sentiment was dented after Apple Inc. released a statement this morning stating it is expecting lower revenues in the year ahead.

Of most concern to traders, the company pointed the finger at a weakening Chinese economy as one cause.

The news apparently rippled through currency markets, prompting traders to sell-out of riskier currencies, like those of emerging markets and the Australian Dollar.

A play into safe havens ensued, resulting in an unwinding of the JPY carry trade.

Owing to the time of the day and that Japan is currently on a bank holiday, currency markets lacked sufficient liquidity.

Spreads blew-out suddenly as major market makers pulled their bid and offer prices.

The ultimate consequence was a cascade in prices: a miniature flash crash.

The USD/JPY was down to 105, and AUD/USD broke into the 0.6700-handle.

Trade is beginning to normalize; however, liquidity is expected to remain thin throughout the week with Japanese markets not returning to normal activity until next week.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

See an opportunity to trade?

Go long or short on more than 17,000 markets with IG.

Trade CFDs on our award-winning platform, with low spreads on indices, shares, commodities and more.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. All share prices are delayed by at least 20 minutes. Prices are indicative only.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.