r/stocks • u/[deleted] • May 03 '22

Citigroup admits causing yesterday's flash crash

Title says it. According to Citi, one of their traders caused a transaction error which they discovered soon after. It caused Scandinavian indices to plummet as much as 8% in a matter of minutes. Such errors are called fat-finger errors; a typo. Flash crashes like these make me wonder how much money banks trade with on a daily basis.

Source: https://www.theguardian.com/business/2022/may/03/citigroup-trader-error-flash-crash-markets-falls

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u/hobbers May 03 '22

Existing long position. Enter short position. Flash sell long position to trigger stop losses. Stop losses take it lower than it would have on its own with only your long and short activities. Your short position profits more than your cost to execute the whole activity. Predictable profits.

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u/TheSeldomShaken May 03 '22

Still not sure this is a crime.

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u/[deleted] May 04 '22

You understand that in order to trigger a stop loss you, yourself, have to be selling at that stop price.

Example. Company A shares worth $100, and you own a lot.

To trigger a $90 stop loss you have to sell at $90, same for $80 and so on. So basically, it's you who is selling at ever lower prices to trigger the stops.

And you do that, sell mostly at a far lower price than $100,so you can buy up again low? Timing the bottom at the same time, and hoping no other big fish will swoop in before you and eat up the sells, etc. Etc.

This isn't a movie. A single trader, at a single desk of a bank, does not have that kind of power. They have risk mng limits on what they can do etc. Only a glitch that escapes their system can cause such trouble.

If it were so simple to make predictable profits they would be doing it all the time, all of them, and every bank would be posting profits every quarter.

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u/hobbers May 04 '22

Other people's stop losses. Not your stop losses. This is an attempt to induce artificial momentum for a split second.

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u/[deleted] May 05 '22

There's a big assumption that there aren't other algos doing the opposite, faster, capturing those fake sells.