The 2016 Pound Flash Crash: Brexit and the 6 minutes that wiped out 6%
How a post-Brexit night saw the pound lose 6% in less than 6 minutes in the forex market — and then recover half in seconds
On the night of October 6-7, 2016, the pound crashed 6% in less than 6 minutes in the Asian forex market. A flash crash caused by algorithms, low nighttime liquidity, and hard Brexit news.
The context: after the Brexit vote
On June 23, 2016, the UK voted to leave the European Union. The pound crashed 8% in a few minutes on the night of the vote. In the following months it remained depressed, losing more points as the hardness of Brexit became clear.
The night of October 7, 2016
On the night of October 6-7, 2016, during the Asian session (the least liquid of the global forex market), news circulated about a possible "hard Brexit" — leaving the EU without a trade deal. Algorithms reacted immediately with automatic selling.
Between 00:07 and 00:13 (Sydney time), pound/dollar crashed from 1.2600 to 1.1841 — a 6.1% loss in less than 6 minutes. At some smaller brokers it fell to 1.1378.
The reconstruction
The Bank of England investigated. The main cause: low nighttime liquidity in the Asian market, the concentration of stop-loss orders at nearby levels, and algorithms that self-amplified.
- Liquidity in forex varies enormously by time of day: the nighttime Asian market has 1/10 the liquidity of London/NY.
- Algorithms create feedback loops in flash crashes: automatic selling triggers other stops, which trigger more selling.
- Flash crashes in forex are different from stock ones: there are no circuit breakers — the price can move indefinitely.