Response To Flash Crashes

Brokers
1

May 6 ,2010 Flash Crash lasted over 35 mins.
Nothing is impossible , in this era of high technology we are still facing freak trades. So it is obvious that we can face flash crashes in upcoming future.

During this event ,some of clients will face negative balance . Not every client hedges thier intraday positions 100 percent. The question is that “Will zerodha close the position of these clients at the worst possible condition ???”

(For those who don’t know , if your account has a negative balance , ZERODHA RMS BOT will close your positions at worst possible time.)

2

Yes its automated. So not the worst time or the best time, but anytime it looks riskier than what your account can support.

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3

Like George Soros lost I think a billion dollars or so, despite any kind of crash, will all people lose so much in one session? Do they leverage so much each day?

4

When people deploy intraday strangles , they are exposed to unlimited risk.
But by using SL orders , they have a limited risk.

During flash crash ,you will blink your eyes and you will see fhat your SLs are jumped and your account is having a negative balance.

That’s where the RMS BOT will close your open positions using market order.

Idk how big brokers like zerodha , upstocks will handle situations like this

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5

Yes, I know about this, but not in detail.

If Zerodha’s RMS cannot handle such a crash, then I guess it is up to the individual traders to incorporate this remote possibility in their trading strategy :thinking:

6

Yes it is. Traders should ideally have reasonable margin headroom in their account and also only do hedged trades.

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7

Flash crash happened in NSE in 2012. Nifty fell by 15.5% in a matter of seconds due to a fat finger trade.

Maybe someone from Zerodha can clarify, is something like a flash crash still possible in indian markets? What happens if it does? @nithin @Meher_Smaran

8

While today the chances of fat finger trade are much lesser due to restrictions on maximum value per order, flash crashes are possible in any market and at any point. Flash crashes can happen when everyone reacts immediately to a news item which could be fake, so the market can crash and then bounce back immediately.

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9

This crazy margin system of india make hedged option trades useless in the name of systematic risk as ROI become very less so people speculate and increase earning of brokers (algo trading) and exchanges yesterday only nse had concall what a fantastic margin by carrying no risk at all,this clearing corporation are also afraid not allowing any one to check their books (EU regulator removed 8 CC from thier approved list)

10

Yeah, although the possibility of fat finger trades exists (chances being lower than before), having SL (limit) orders helps us escape with minimal cuts. Check this Z-connect post out for a detailed explanation on freak trades :slight_smile:

11

In addition to above. I dont think the automated RMS is built on options premium. They might have consider the below scenario.

It should be combination of index and option premium. Even though option premium 10x in a minute but index remain ±100 RMS should not be exiting the orders. (Expiry gama effect is excluded)

12

All this stuff is way to complex y not put system in place where you pay for whatever maximum risk you are carrying to the underlying forcing to close the trade just becasue you dont have money to pay for exposure margin even though you are fully hedged