This report examines how forced selling can lead to market volatility and considers the impact of high frequency trading (HFT). It looks at:
- sources of forced selling and the role of leverage
- historical examples where forced selling has played a major role in market crashes
- market liquidity, information, and crashes
- high frequency traders and market liquidity
- the ‘Flash Crash’ and HFT
This review was commissioned as part of the Foresight project on the future of computer trading.