Even if you’re not interested in virtual currencies, you might have heard the names ethereum and GDAX yesterday on social media. Ethereum is a cryptocurrency, much like Bitcoin, and it’s one of the more actively traded virtual currencies. There was a “flash crash” in its value yesterday, the term refers to a steep immediate decline in value, which wiped out many traders but also apparently minted a millionaire.

Ethereum’s price on the GDAX cryptocurrency exchange fell to as low as 10 cents from $319 in about a second due to a “multimillion dollar market sell” order. It was trading as high as $352 on Wednesday.

Vice president of the GDAX exchange Adam White said that the flash crash was initiated by a multimillion dollar market sell order that was executed around 12:30 pm PT. It resulted in orders being filled from $317.81 to $334.48.

The flash crash was basically caused by automated market orders that are designed to help a trader limit their losses. They are called stop loss orders, as the name suggests, the order is automatically executed once the instrument’s price reaches a certain limit so that the trader can cap losses.

Once the multimillion dollar market sell order was fulfilled, the price continued to fall which trigged another 800 stop loss orders. Moreover, margin funding liquidations further exacerbated the problem and pushed the cryptocurrency’s value to as low as 10 cents.

Many ethereum traders criticized GDAX on social media and some even alleged that perhaps some illegal activity was taking place. However, White says that initial investigations show no signs of wrongdoing or account takeovers. A thorough investigation into the flash crash is being conducted as well.

The GDAX exchange had to temporarily halt trading of the virtual currency so that the system could be restored. It has confirmed that all of the trades executed during this time are final and will not be reversed. Some traders have seen their positions being wiped out, losing as much as $9000 in seconds, while one trader may have benefited from the flash crash spectacularly.

One trader is believed to have an automated order set to buy 3,800 ethereum if the price fell to 10 cents on the exchange. The trade would have cost $380 to purchase 3,800 coins. The price shot back up to $300 soon after the system was restored thus valuing those 3,800 coins at well over a million dollars.

Ethereum is currently trading at levels around or above those before the flash crash took place. What this tells us is that trading in virtual currency remains very risky even though efforts are being made to bring them more in line with traditional financial instruments.

If you don’t know what you’re doing or don’t have a high risk tolerance, maybe don’t try your hand at cryptocurrency trading.

Filed in Web. Read more about and . Source: msn