Eli5: Why do they halt trading for volatile stocks?

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Why not just let them drop to zero? Doesn’t this interfere with the market?

In: Economics

11 Answers

Anonymous 0 Comments

It is dangerous to not halt them because what may seem like just a momentary spike in activity could very easily have a chain reaction across the whole market. Market panics are very common but also very dangerous because what can be done in an instant cannot necessarily be undone just as easily. Increased trading activity also puts a strain on brokers and the back end infrastructure that facilitates trading in the first place. Since a lot of money is on the line, it’s better to halt trading than create a scenario where systems crash, causing widespread problems for the entire market, or orders go through that should not have gone through, or brokers reach a point where they cannot carry out proper order execution due to regulatory or fiscal constraints.

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