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Medium · Market Microstructure · Quant Trader interview question · HFT, liquidity, flash-crash, risk-management
During the 2010 Flash Crash, the market experienced a rapid and significant decline followed by a partial recovery. High-Frequency Trading (HFT) firms played a significant role in this event. Consider a scenario where the market is rapidly declining. What was the primary reason HFT firms reduced their market-making activity, contributing to the liquidity evaporation?