ELI5 Market Microstructure: Why high P/E tech stocks crash in low pre-market liquidity
Imagine buying a high-tech lemonade stand for $75 based on promises it will sell tons of lemonade next year. When the owner says lemonade sales will be delayed because they spent $50 on bigger ice machines (CapEx), investors freak out. In early morning trading before the market opens (pre-market), very few people are buying. When panic sellers try to drop their shares all at once, the price drops like a rock straight through thin bid gaps.