Analyzing the Flash Crash in Utilities This Morning

Early in the session Thursday, American Electric Power AEP and NextEra Energy NEE lost more than 50% of their value in one second today, and then rebounded entirely. The event was caused, not by company news, but by market structural issues. The new limit up, limit down (LULD) circuit breaker system, which should eventually give protection against these events, is only in its first phase and does not cover trading in the first 15 minutes of the day. This leaves us susceptible to more market meltdowns as this is the period when liquidity is typically at its lowest. A sudden demand for liquidity can cause very drastic falls. We break down these market structural issues and warn investors of the dangers of using market orders and stop-loss orders. Here is the tale of the tape from today's flash crashes: