Black Monday refers to October 19, 1987, when global stock markets experienced one of the sharpest single-day declines in history.
The Dow Jones Industrial Average fell 22.6% in one day — the largest one-day percentage drop ever.
Markets worldwide fell in tandem, including Australia, Hong Kong, and the U.K.
There was no single economic shock; selling accelerated across global exchanges within hours.
Trading systems were overwhelmed, liquidity disappeared, and pricing became chaotic.
Although markets crashed, underlying economic conditions remained largely stable in the short term.

What Drove the Crisis

The crash was driven by market structure and automated trading, not fundamentals.
Program trading and portfolio insurance:
- Large institutions used automated strategies that sold index futures as markets fell.
- These strategies acted as mechanical sellers during declines.
- Falling prices triggered more automated selling, creating a powerful feedback loop.
Market fragmentation and weak price discovery:
- Futures markets collapsed faster than cash markets, causing dislocation.
- Market makers withdrew as volatility surged, reducing liquidity when it was needed most.
- With few buyers, even strong companies’ stocks fell sharply.
The event was structural rather than economic.

Investor Lessons

Market mechanics can create volatility far beyond what fundamentals justify.
Automated strategies can amplify declines when they respond to similar signals.
Liquidity is not guaranteed; markets can gap and correlations can converge to one.
Pricing models can fail when market participants withdraw.
Circuit breakers, coordinated oversight, and market-making incentives help prevent similar feedback loops.
Risk comes from both assets and market structure — liquidity, trading systems, and participant behavior all matter.

Black Monday Crash (1987)