So what did happen?
The following are some of the most common theories being put forward to explain what happened....
#1) A Bad Trade
It has been widely suggested that a "fat finger trade" was responsible for triggering the panic. According to CNBC, "sources" have told that network that a trader (possibly at Citigroup) entered a "b" for billion instead of an "m" for million in a trade involving Procter & Gamble.
However, Citigroup has already announced that it has found "no evidence" that it was involved in any erroneous trades. In fact, a statement was released in which Citigroup spokesman Stephen Cohen said this....
"At this point, we have no evidence that Citi was involved in any erroneous transaction."
#2) A Computer Glitch
New York Stock Exchange spokesman Rich Adamonis says that "there were a number of erroneous trades" on May 6th, and that these could have been caused by computer error.
And the truth is that trading in the financial markets is more automated and more reliant on computers than it ever has been before. Trading literally moves at lightning speed now, and a number of analysts are warning that the pace of the market is so fast at this point that it is really easy for things to spin out of control very quickly.
But if this was really primarily caused by a "computer glitch", how are investors supposed to have any confidence at all in the market? After all, if a computer error can wipe out half your account in less than an hour, why invest at all?
#3) Cascading Stop Losses
Once the market hits certain technical levels, it is going to automatically start triggering stop loss orders. Once those stop loss orders are triggered, it will push the market down further thus triggering more stop loss orders.
While there have been some protections implemented to guard against this kind of thing, the reality is that it does still happen.
Hackers have become more sophisticated and more cunning than ever before. In fact, the bigger a target is, the more enjoyment most hackers get out of taking them down. Is it a possible that someone could have hacked in to the New York Stock Exchange?
Rogue nations and terrorist organizations have been developing their "cyber warfare" capabilities for some time now. We have been repeatedly warned that someday we will see an "Internet 9/11". Could this stock market plunge be a preview of that?
#6) Fear Of The European Debt Crisis Spreading
There are mounting concerns in the financial markets about Greece's financial condition and that the European debt crisis could spread around the globe.
In fact, the Dow has lost 631 points, or more than 5%, in just the last three days amidst worries about the situation in Greece. This represents the biggest three day drop since March 2009. (read more)