What was the 2016 pound flash crash?
On 7 October 2016 the pound lost almost 9% against the dollar in under 40 seconds, then won most of it back. What was the 2016 pound flash crash, and why did it happen?
Just after midnight in London on 7 October 2016, the pound lost almost 9% against the dollar in under 40 seconds, and most of the drop was gone within ten minutes. The Bank for International Settlements (BIS) found no single cause: several automatic sellers met one of the thinnest hours of the trading day.
What happened in those few minutes?
GBP/USD had closed in London on 6 October just over 1.26, after a week of steady selling. At 00:07 British Summer Time (BST), 8:07 a.m. in Tokyo, that selling turned into a cliff. The BIS rebuilt the minutes from Thomson Reuters Matching, one of the two venues it studied:
| Time (BST) | GBP/USD on Reuters | Event |
|---|---|---|
| 00:07:03 → 00:07:11 | 1.2600 → 1.2494 | about £252 million of GBP/USD traded in eight seconds, mostly seller-initiated |
| 00:07:15 | 1.24 | the Chicago Mercantile Exchange (CME) pauses sterling futures for 10 seconds |
| 00:07:34 | 1.20 | resting buy orders run out across several platforms |
| 00:07:41 | 1.1491 | lowest trade on Reuters, almost 9% below 1.26 |
| 00:08 → 00:09 | 1.20 to 1.22 | the price rebounds, still in a wide range |
| around 00:20 | about 2.2% below 1.26 | spot and futures settle |
Other platforms printed even lower prices. Reuters' news service first reported a low of 1.1378, then revised it to 1.1491 after an outlying trade was cancelled, still the pound's weakest level since 1985. There is no single official low in forex: some trades were torn up or repriced afterwards, case by case.
Why did it fall so far?
The hour. Forex is a market that never sleeps during the week, but in the early hours of Asian trading sterling is typically illiquid, and that day regional holidays, including in China, thinned it further. It is the pattern behind our piece on the few hours a day when forex is truly alive.
Automatic sellers. Dealers hedging options, including barrier options, had to sell more pounds the further sterling fell, and stop-loss orders added to the selling pressure. The BIS put the potential selling from both, across GBP/USD and EUR/GBP, at up to roughly £3.5 billion, against just over £2 billion that actually traded on the CME and Reuters between 00:05 and 00:15.
Buyers stepping away. The CME futures hit their daily lower limit at 00:07:29 and were halted for two minutes at 00:09:29, and some market makers are thought to use the CME as an extra price source. Firms that withdrew stayed out for anywhere between two and 30 minutes. The BIS also pointed to staff outside the pound's home time zone, with lower risk limits and less experience choosing algorithms for those conditions.
What about the headline that early commentary blamed? A Financial Times story, "Hollande demands tough Brexit negotiations", went online at 00:07:13. The slide on Reuters had started at least ten seconds earlier, and the comments had already been reported that evening.
How much damage did it do?
Little beyond the screen. No systemically important institution suffered material losses, there were few spillovers to other currencies or assets, and GBP/USD closed in London that day 1.7% below the day before, not 9%. When trading reopened on Sunday 9 October, the market was working normally.
What it did change was the price of an exit. Below 1.22 the price was jumping from trade to trade, so a stop left at 1.22 or 1.20 that night had no reason to fill at 1.22 or 1.20: it filled at the next price there was. Those jumps are gaps, and a stop sitting inside one comes out the other side as slippage, as our comparison of slippage, requotes and gaps explains.
Some brokers also close retail clients' positions automatically once they no longer meet their margin, which the BIS lists among the mechanical sellers that can chase a fall.
What can a trader take from it?
- Liquidity is a time of day, not a property of the pair. Cable, the nickname for GBP/USD, is one of the major pairs, and for a few minutes it had almost no buyers. More in our guide to liquidity.
- A standard stop becomes a market order once triggered. In a hole like this one it fills wherever the next buyer is, not at the level you set.
- Check the clock before the headline. The story early commentary blamed came out at least ten seconds after the fall began.
- A headline low can be a single trade. 1.1378, 1.1491 or lower elsewhere: the "low" depends on the venue and on which trades survived.
Times, levels, volumes, the CME halts and the causes come from the BIS Markets Committee report "The sterling 'flash event' of 7 October 2016" (January 2017), built on Bank of England analysis. The ten-minute reversal is from the Bank of England's Bank Underground blog (March 2018). The 1.1378 first print, its revision and the comparison with 1985 are as Reuters reported them at the time.
