Market Circuit Breakers?
When the market is in free fall, there are circuit breakers that stop trading for all of 15 minutes, and then the deluge resumes typically. Last night, the futures market rose more than 5% accompanied by a circuit breaker as well. This seemed to remain in place until the open in New York a few hours later. Why the difference? Why would it not be lifted with a rising market after a similar time frame? Thankyou.
Terry Says
There’s a big difference between the FUTURES markets and the actual stock market. The futures markets are traded literally round the clock. And all futures — whether stock or soybean or currencies, etc — ALL have “limits” on both the upside and the downside. Once a futures market trades at its daily limit there can be no more trading above or below that certain price — although in some cases, transactions can be made AT that limited price. There is no specific amount of time that a futures market can remain locked limit down or up. It could be several days before the market re-opens.
Those futures prices give the actual stock market an “indication” of where the stock market should open at the opening bell. But if the futures are locked limit down, the actual market can open even lower than the futures.
The stock market Circuit Breakers were established after a mini-crisis in 2010, where markets were temporarily in free-fall for technical reasons. So they instituted the circuit breakers which stop trading for 15 minutes (in the actual stock market, not futures) at a decline of 7 percent, and again at a decline of 13% — and ultimately at a decline of 20% (which may remain in effect for the rest of the day, or overnight).
Even some TV commentators were confused about this — continually saying things like the futures are down 1200 points — and then the real market opened down even farther before trading was halted. You need to understand the difference between futures contracts and actual trading in stocks to understand this!
