Thin-hour risk, as shown by the pound's 2016 flash crash

[Shadow Trader]

In October 2016, in the early Asian hours, GBPUSD dropped nearly 9 percent within seconds, then recovered most of it within minutes. It happened at a time of day when liquidity is minimal, and a mix of algorithmic selling and thin books produced a vertical fall.

The event is an extreme example of a general pattern. In thin conditions, a large order or a cascade of stops can push price far beyond where it would go in a normal market. There's no one to take the other side until the price has traveled a long way.

The lesson for scalpers is about timing. The hours with the least liquidity carry the largest tail risk, even on a major pair. A stop in the Asian night can be filled at a price that never existed in a calm market.

Not every thin hour holds a crash. But the distribution has fat tails, and the tail lives at those times.

Are positions kept open during the thinnest hours of the day, and how is the tail risk viewed?