If I recall correctly, wasn't there, like, an extremely fast recovery from the flash crash? Why does the flash crash even matter? (I'm not being snarky at all, BTW.)
If we have another flash crash, you can bet that the already-low volumes on the markets will be met with even lower volumes, which could damage our economic recovery. Most peoples' 401ks are tied to the stock market, and the last thing we need is a generation of un-retireable people because they lost a lot of their retirement on the stock market.
Well, if day traders lost money, who cares? That's the business they're in.
It also called into question the stability of our markets. If people lose confidence in our stock markets, then people stop trading on them.
True, but there was a fast recovery, and people are still trading. You mentioned that volume is low. I wasn't aware of that (just don't follow things that closely). Does that correlate to when the flash crash was? I'd be surprised if the flash crash rattled people so much that it still has an effect on market confidence.
Most peoples' 401ks are tied to the stock market, and the last thing we need is a generation of un-retireable people because they lost a lot of their retirement on the stock market.
Well, investment managers who control people's 401ks should not be trading during a flash crash. I mean, I'm just not so sure that it affected everyday people much.
Also, there are a LOT of things to blame the current economic scewing-over of people on, and the market would be near the bottom of my list.
I know the exchange can automatically put a halt to the trading of an asset, and that seems (to me) like a good tool in this case. e.g. if there is a certain pre-defined amount of volatility in a certain time. Do you think that would address this concern?
The exchanges had similar circuit breakers in place during the flash crash. They even cancelled some orders after the fact.
But the flash crash still caused real investors (not professionals) to lose real money for the reasons outlined.
Alternatively, the exchange's failure to tune the circuit breakers correctly caused real investors to lose real money?
Oh, also don't forget that the exchanges are subject to regulatory capture from the firms who benefit from real investors losing money to market manipulators. It's not like Goldman Sachs is going to be pounding the table for the NYSE to make it harder for HFT desks to manipulate markets.
You can't have it both ways, either you set hard limits for your position and take the hit when you guess wrong or you let your position ride and risk losing everything. The crazy prices were busted after the fact anyway so if you had a stop loss further out than 60% of the pre-nonsense price your trade never happened.
Where are the customers' yachts?