With increased volatility in markets, we may see exchange mandated trading halts that may come into effect.
Here’s some information so you’re in the know.
Both stocks and whole markets are susceptible to halts in trading when prices fluctuate rapidly. Trading can halt for a few different reasons.
If the S&P500 falls 7% from its previous close at any time before the last 25 minutes of the session, a 15-minute trading halt is enforced by the exchange. This 15-minute halt is enforceable again after a 13% drop. If the market then continues to fall to 20%, the market will close for the day. These halts are known as circuit breakers.
The price movement necessary to trigger a trading halt differs depending on the stock.
For S&P500 and Russell1000 stocks:
- a 10% movement inside the first 15 minutes or last 25 minutes of the session within a 5 minute period.
- a 5% movement between these times within a 5 minute period.
For most stocks outside these indexes:
- a 20% movement inside the first 15 minutes or last 25 minutes of the session within a 5 minute period.
- a 10% movement between these times within a 5 minute period.
What happens to orders during halts?
An order placed before a trading halt will be held and executed once trading recommences.
An order for a full share placed during a trading halt will be executed once trading recommences.
Note, that orders for fractional shares will be rejected by the exchange and need to be placed again once trading recommences.
Managing your risk during volatility
Such volatility can bring some particular risks to investors. We have prepared the following piece, to bring your attention to ‘gap risk’ and ‘liquidity risk’, two factors to consider while managing your portfolio during such periods.