Have you ever wondered about the exact cause and definition of a stock market crash? A stock market crash happens when the market index drops to lower levels in a severe manner. Note that the market index can lose in a day, in a month or a year. Interestingly, the crash of a stock market becomes more sudden when the market falls below the 10% mark from its 50-week high over days. Interestingly, a stock market crash can also occur when the shareholders dump their holdings. This process can shift the prices of the shares down, thereby crashing the market.

Comprehending stock market terminology

Stock market crashes are a rapid decline in the prices of shares. Note that the formal definition of a stock market crash doesn't exist. A stock market correction is a term that is often used in connection with market crashes. However, this aspect of the stock market possesses a more formal definition. It was a drop of at least 10% of the stock's price when it was in the recent peak position. On the other hand, a bear market refers to a decline of almost 20% off-peak prices. The exact opposite of the bear market is the bull market, where the costs of a set of stocks rise at least 25%.

Overview of flash crashes

Well, stock markets can crash in a brief period. This is mainly referred to as flash crashes. There have been several events in the last two decades, which are referred to as flash crashes. It is a term that is used extensively when automated trading software detects anomalies in the stock prices. It begins to dump stock so that steep loss can be avoided. These days automated software is being used by stock exchanges to detect flash crashes in a specific market.

Profiting from crashes

As a trader, you should be aware of profit from crashes. Note that crashes are an integral part of a particular stock market. You need to learn to anticipate when a crash would happen so that you can make a profit. For instance, if you have stocks that are up from the buying price, you can sell them to gain money.

On the other hand, you can also opt for sell stock short. However, it would be good if you talk to other brokers about buying this type of stock. Thus it is quite evident that you need to learn various functionalities of online share trading.

You have to learn the basics of trading well so that you can handle the stock market crash. Learn how to anticipate a crash, and you would have the opportunity to avail a good profit. These automated software acts as circuit breakers and automatically stops trading in case of abnormal market conditions.