A flash crash is a sudden, extreme drop in an asset's price within minutes—or even seconds—followed by a quick recovery. These events are common in centralised exchanges (CEXs) due to high-frequency trading, liquidity gaps, or algorithmic errors.

Causes of Flash Crashes
Algorithmic Trading Glitches: Bots executing large sell orders can trigger cascading liquidations.

Low Liquidity: Thin order books amplify price swings when large trades occur.

Market Manipulation: "Spoofing" (fake orders) or whale dumps can artificially crash prices.

Technical Failures: Exchange system errors or API malfunctions disrupt normal trading.

Impact on CEX Trading
Liquidations: Traders using leverage may get forcibly liquidated before prices rebound.

Stop-Loss Triggers: Sudden dips activate stop-loss orders, worsening the sell-off.

Loss of Trust: Repeated flash crashes can erode confidence in an exchange’s stability.

Arbitrage Opportunities: Traders exploit price differences between exchanges before recovery.

How to Protect Yourself
Avoid trading during low-liquidity periods.

Use limit orders instead of market orders.

Monitor exchange health (e.g., Binance, Coinbase) for past incidents.

Flash crashes highlight the volatility of crypto markets, emphasising the need for risk management in CEX trading.