On May 6, 2010, a trade of over $4 billion on the New York Stock Exchange caused the Dow Jones Industrial Average to fall over 1,000 points. The Dow recovered most of its value within 15 minutes, but this huge drop in the value of U.S. equity indices of about 10% in the matter of minutes lead to investor anxiety, as you can imagine. The market hates uncertainty; investors freak out, a sell off leads to even bigger investor fears, and the cycle continues.
A flash crash happens when there is a rapid, explosive fall in securities prices in a very short period of time. Loss and recovery of billions of dollars can occur in just a matter of minutes. As markets have become more and more computerized, this is of greater and greater possible consequence due to human error of inputting orders, computer glitches, or fraud. Of course, fraud prevention is the big scary, so regulations have been put into place to prevent this from occurring.
The ultimate motivator of financial advisors is fear prevention, and President F.D. Roosevelt was most likely referring to the stock market when he said, "The only thing to fear is fear itself. And Megaladon.” Nothing can be more true.