Definition
A flash crash is a market event where the price of an asset falls sharply and unexpectedly in a very short period of time, then often recovers quickly. In crypto trading, this usually appears as a steep, momentary drop in price on a spot market, visible as a sudden spike on the price chart.
Flash crashes are typically associated with thin or imbalanced orderbooks, where a large sell order or a series of rapid trades overwhelms available buy orders. They are closely linked to high volatility conditions and can be intensified on a CEX when automated trading systems or cascading orders interact in a short time window.
Context and Usage
The concept of a flash crash highlights how quickly prices can move in electronic markets and how sensitive they are to liquidity and order flow. During a flash crash, traders may experience severe slippage, as orders are filled at prices far from the last visible quote due to the rapid movement and temporary lack of opposing orders.
Flash crashes are often discussed in relation to risk management and market structure, especially on centralized exchanges where the orderbook directly reflects available liquidity at each price level. They serve as examples of how volatility can briefly disconnect prices from recent trading ranges before the market stabilizes and normal trading resumes.