Ethereum Flash Crashes To $0.10 USD On GDAX

In a massive flash crash, Ethereum traded at 10 cents USD for a few moments on GDAX.

Basically there was some trading black magic that occurred...

Someone put in a huge, multi-million dollar sell (I'm assuming well below market). Because of the size of this order it triggered a lot of people's "stop loss" orders. These are usually set at a sliding percentage below the high. Here's the problem though, because of the massive order below market price, they all triggered. The stop loss was probably placed to execute at current market value. Depending on the bids, this was probably even lower than the huge sell. This essentially caused a chain reaction which dropped the price. The price then went in to a freefall, which triggered Coinbase to automatically liquidate people's positions to stop their losses. These liquidations triggered more liquidations and stop losses, and before you know it, Bob's your uncle, and Ethereum is at 10 cents.

I should clarify further, these liquidations typically only happen when you are margin trading. Margin trading is like a credit account at an exchange. Say you put in $5k, they may give you a margin account for 50% of that. So with a 5k investment, you can play around with $7.5k. the problem is, if your account value drops below the required balance (let's say $5k is required) they do what is called a "margin call" where they liquidate all your assets to try and bring your account back up to balance. They are effectively stopping their own losses. If you get margin called in a flash crash, you're in trouble. This is what happened here. Essentially, Coinbase didn't do anything wrong. They are simply playing by the rules that are understood by all parties. It's a rare occurrence, but is completely possible.

This is also why margin trading is playing with fire. Things like this can and do happen. This is the second time margin traders have had this problem in 6 months, if I recall correctly.

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