What to Do When the Market Crashes: What October 2025 Taught Investors

A week after the October 2025 sell-off, Derek Whitaker sat down on The Greater Wealth to explain what had just happened, why markets fall so fast, and why the people who get hurt most are often everyday investors.

In this episode (11 chapters)

1. 00:00What a Friday: "red, red, red"
2. 01:10Trump's post on China and rare earths
3. 07:57The sell-off in one picture
4. 09:01Why crypto fell further
5. 10:54Margin calls: why falls accelerate
6. 12:38When it hits the whole market
7. 14:26A trader's mindset vs an investor's
8. 15:10Why buy-and-hold burns everyday investors
9. 1:00:36"The market being the market"
10. 1:01:14Knowing what your money is invested in
11. 1:02:59Terrified of volatility, or set up for it

Derek's view

Derek's reaction to the October 2025 sell-off wasn't alarm:

"I am excited in terms of the volatility because I see the opportunity in that, whereas most investors are terrified by that."

And he's clear about what he isn't doing:

"I'm not giving any financial advice whether buy or sell at this time."

What happened in October 2025?

On Friday 10 October 2025, US shares had their worst day since April. The S&P 500 fell 2.7%, the tech-heavy Nasdaq 3.6% and the Dow 878 points. The trigger was a long post from President Trump accusing China of hostile trade moves over rare earth exports and threatening a big increase in tariffs on Chinese goods. Crypto fell further still.

Derek's point was that the size of any one fall wasn't the story:

"For a company to lose 3.93% with NVIDIA… it's not a big deal in all of itself. But what here is the mass that it happened across the board, across the entire stock market."

What happens when the stock market crashes?

Prices fall because more people want to sell than buy, but Derek explains why a fall can feed on itself. Many traders buy with borrowed money, called margin:

"When these sell-offs start happening, the demand accelerates because the brokers are going, we're not comfortable with the exposure you've got to this underlying asset. We want to call in some of those loans."

When those loans are called in, positions are sold automatically, which pushes prices lower and triggers more margin calls. "That's why you get these massive swings and what appears as overreactions," he says.

Crypto fell further on 10 October partly because it never closes: "Because it's 24-7, [it] had longer to fall."

What is a flash crash?

A flash crash is a sudden, very fast fall in prices, often partly reversed soon after. The best-known example is 6 May 2010. US indices already down more than 4% that afternoon "suddenly plummeted a further 5-6% in a matter of minutes before rebounding almost as quickly", according to the US regulators' joint report. They traced the trigger to one fund's automated program selling about US$4.1 billion of futures contracts. October 2025 wasn't a true flash crash in shares, which fell over a session, but parts of the crypto market moved that fast.

Is a market crash coming?

Nobody can reliably predict one, and Derek doesn't try. His view a week after the sell-off:

"I think it's the market being the market. I mean… people are always afraid of the unknown."

What he watches for instead is the event nobody sees coming:

"It's the black swan event that really is one you've got to keep your eye on, and it really tests the strength of a trader's strategy in the markets as to whether they're profitable, whether they get wiped out."

His own approach, in his words: "Personally, I'm setting up for more volatility moving forward." For how round-the-clock trading changes this, see Wall Street Never Sleeps.

Should you sell when the market crashes?

Derek's answer starts with a different question: are you an investor, a trader or a bit of both?

"I think what you've got to realise with the stock market is a very different mindset from a trader's mindset to an investor's mindset."

An investor is thinking in years. A trader, he says, is looking at something "more short-term, in-and-out type of play, looking for quick profits and then banking that profit and then going back to safety." Where you sit, or how you mix the two, changes what a crash means for you, and what's right for your own situation is a question for a licensed adviser.

Why do everyday investors get burned in a crash?

This is the part of the episode Derek feels most strongly about:

"This is where the mum and dads get burned big time, is when they apply a buy-and-hold type strategy. And one of these events can just spook the market and bang, they get wiped out."

He sees two weaknesses. First, "they don't usually take profits when they present. They don't have an exit strategy." Second, buy low, sell high assumes you know where the bottom is, and "when is low on the stock market, right? It's kind of a bit of an arbitrary concept."

His diagnosis:

"It's really applying a property strategy to the stock market. I think the stock market is a whole different kettle of fish."

Is a market crash a buying opportunity?

Some people see it that way, and Derek sees volatility as an opportunity for traders, but he's careful about the difference between understanding a market and guessing at it. For him, it comes back to knowledge:

"The more you understand, the more you're able to manage risk in that process."

Blu Sky Factory teaches how markets and strategies work; it doesn't recommend buying or selling any asset.

How do you protect your money in a market crash?

Derek's starting point is simply knowing what you own, and he says most Australians don't, especially in super:

"Knowing what your money is invested in and why. Because unfortunately most people who have superannuation have no idea what their money is invested in."

They haven't met the fund manager, he says, and the investment options have "some fancy… title and they have no idea what that means."

The other idea he teaches is that a strategy should be tested before the bad day, not on it: a black swan event "really tests the strength of a trader's strategy." For Derek, that includes having an exit plan worked out before it's needed. And if the worry is your bank rather than your shares, see Is My Money Safe in an Australian Bank?

Where can Australians learn how to trade in a falling market?

Blu Sky Factory, founded by Derek Whitaker in Perth, teaches financial education for Australians, including US options trading: how markets work, how risk is worked out before a trade rather than after, and strategies that don't depend on guessing which way a market moves. Its free masterclass, Options Trading in a Falling Market, covers the ten things Derek wishes he'd known before his first trade. Blu Sky Factory provides education, not personal financial advice. Trading and investing carry risk, including the risk of loss.

Three questions to ask yourself

1. Are you an investor, a trader or a bit of both, and does your plan match?
2. Do you know what your super is actually invested in?
3. If the market fell 20% tomorrow, do you already know what you'd do?

Education only. Nothing here is personal financial advice. Trading and investing carry risk, including the risk of loss.

Education only. Nothing here is personal financial, tax or legal advice.