How the market works when uncertainty and fear take place

http://www.cboeoptionshub.com/2011/0...1-07-06-11-34/

The important thing to take from this experiment is that this thing we call the “fair value” of a stock may not have changed much during the “Flash Crash”. In fact, for a few stocks, it may not have changed at all. What we witnessed was in part an effect of wider markets and a few trades on those wider markets giving the illusion that things were much lower than otherwise thought.

All the information applies to all markets not just stocks which the article refers.

What the article does not say is that while all the "wide markets" deal is going on, brokers may still show you their 1 pip or whatever tight spread during regular/busy hours. The HFT market makers are obfuscating the spread. To get around this, firms are buying order flow, internalizing and setting up bucket shops in order to get a real view of the order flow and access to trades that aren't informed of the book imbalance and equilibrium.

Once a trade is opened inside the spread, the HFT can freely move the prices around the actual spread they are obfuscating. Practically this boils to "the dealer always wins - almost always". If the dealer is using margin then they may risk blowing up, such as on the black monday where certain fund strategies may decide to sell into fresh lows all the way until the market gets halted.