Home › Stories › Market history

Black Monday 1987: the day the Dow fell 22.6%

On Monday 19 October 1987, the Dow lost 22.6% in a single day. That's still its worst day ever. There was no war, no bank failure, no single piece of news that explained it.

Story · 7-minute read · Updated 2026-10-21

The world before the crash

The 1980s were a strong decade for US stocks. From August 1982 to August 1987, the Dow more than tripled. On 25 August 1987, it closed at a record 2,722.42.

Then the mood began to change. Interest rates were rising. The US dollar was weak. Worries about the trade deficit grew.

In the week before Black Monday, stocks fell three days in a row. On Friday 16 October, the Dow lost about 4.6%. Traders went home for the weekend nervous.

What was new in 1987: selling by machine

Two newer ideas were common on Wall Street by 1987.

Portfolio insurance. Big funds used computer models to protect themselves. The rule was simple: as stocks fall, sell more S&P 500 futures to limit the damage. It sounded like a safety net.

Program trading. Computers sent large baskets of orders at once, often to profit from small gaps between stock prices and futures prices.

Here's the catch. If thousands of funds all follow the same rule — "sell when prices fall" — then falling prices create more selling, which creates more falling prices.

What happened

Markets in Asia and Europe fell first, as Monday arrived around the world.

In New York, sell orders flooded in at the open. Many big stocks couldn't open on time because there were too many sellers and too few buyers.

All day, the selling fed itself. Portfolio insurance models told funds to sell futures. Falling futures dragged stocks lower. Lower stocks triggered more futures selling.

Phones went unanswered. Trading systems fell behind. Prices on screens were often out of date.

The moment everyone remembers

At the close, the Dow was down 508 points to 1,738.74. That's 22.6% in one day.

To put that in perspective: on Black Tuesday in 1929, the Dow fell about 12%. Black Monday was almost twice as bad in a single session.

The S&P 500 fell about 20%. S&P 500 futures in Chicago fell even more.

The next morning, the Federal Reserve, led by new chairman Alan Greenspan, issued a one-sentence statement saying it stood ready to provide the cash the financial system needed. Markets steadied. Over the next two days, the Dow won back a good part of the loss.

What changed afterwards

A presidential task force, often called the Brady Commission, studied the crash. It found that the stock, futures and options markets acted as one market but weren't run that way.

One result was circuit breakers: rules that pause trading for everyone when prices fall a set amount in a day. Updated versions still exist today, and they halted US markets several times in March 2020. See circuit breaker.

What it teaches

1. A stop is a plan, not a guarantee

On a day like Black Monday, a stop order becomes a market order when it's hit. In a fast, one-way market, it may fill far below where you set it. That gap between your price and your fill is slippage.

A stop still matters. It turns "how much could I lose?" from "anything" into "about this much, unless the market jumps". Read how to set a stop-loss, and know its limits.

2. Size for the bad day, not the normal one

If your size only works when markets behave, it's too big. A small, fixed risk per trade (we use about 1%) leaves room for a fill that's worse than planned. Work it out with the position size calculator.

3. "Everyone is doing the same thing" is a risk

Portfolio insurance was a smart idea for one fund. It became dangerous when nearly every big fund used it. When all exits point the same way, the exit gets crowded.

4. Gaps happen

When markets open far from yesterday's close, there's no price in between to fill your stop. That's a gap. Our gap trading guide explains how they form and how to plan around them.

What it doesn't mean

• It doesn't mean computers caused the crash on their own. Rising rates, a weak dollar and high prices set the stage. Economists still argue about the exact mix.
• It doesn't mean every crash leads to a depression. The US economy kept growing after 1987. The Dow got back to its August 1987 high in about two years.
• It doesn't mean "buy every crash" works. 1987 bounced back fairly fast. 1929 did not. Nobody knows in advance which kind of fall they're in.
• It's not a reason to fear the market every day. It's a reason to size every trade as if a rare day could arrive.

Timeline

Questions