3 ms·

Something ive wondered about these 'circuit breaker' halts...do they actually work to prevent mass sell off or are they just prolonging the inevitable? Apparen

Something ive wondered about these 'circuit breaker' halts...do they actually work to prevent mass sell off or are they just prolonging the inevitable? Apparently not only can the powers that be halt trading momentarily, they can simply close the market altogether if trading is "bad" enough. How is that not manipulating the market? Why shouldnt we all be able to sell? disclosure: Im firmly in the blue collar worker category. I dont own stocks.

cthor 7y ago
> How is that not manipulating the market? Nobody said it isn't. In fact, that's the whole point: manipulate people to chill out, take a few minutes to think, and then get back to it.
- nimbius 7y ago
  so isnt it bad to manipulate a free market? I know China gets beaten up about it all the time.
  - sp332 7y ago
    Stock exchanges are heavily regulated. That's why trades can be made so quickly.
  - thawaway1837 7y ago
    The market exists through manipulation (regulation). There is no such thing as a free market that erupts spontaneously. Despite the rhetoric from certain circles, “free” markets are actually highly managed and regulated entities. There’s a reason why places with the best (largely defined as consistent) regulations, and greatest stability are also financial centres. If markets erupted without any regulatory framework then their quality would be highly correlated with the level of anarchy in a place. Whereas the reality is almost the opposite.
  - SpicyLemonZest 7y ago
    When knowledgeable people talk about "market manipulation", they're generally talking about secret market manipulation, fiddling with the market structure in private to extract value from it. Wash trading is a good explanatory example; you're tricking people into thinking market volume is higher than it actually is, to get them to do things they wouldn't do if they knew the real story. Setting clear rules known in advance is "manipulation" by some definitions, but it's not really the same thing. There are some people who beat up China for simply setting rules in the market, and they're definitely wrong to do so, although you shouldn't confuse this with people saying the specific rules China sets are bad.
VBprogrammer 7y ago
I think it is mostly required because trades are executed so quickly now by so many bots that it's possible for them to get into feedback loops that are hard to model. Stopping the market gives everyone a chance to decide what parameters to tweak before getting back at it.
sokoloff 7y ago
When you define the rules ahead of time, I think it's perfectly fine. (I tend to be in the camp of "let the market be a market", but these circuit breakers are set well away from any normal market activity, are fairly proportionate, and obviously well-understood ahead of time, so I think they're better [meaning more practical] than my general "let 'em play" attitude.)
thawaway1837 7y ago
Panic is real. And it can be very difficult to undo some of the damage caused by panic. The circuit breakers are a neutral addition. In some cases they may be triggered unnecessarily and are just delaying the inevitable. In others they may have a very real benefit in giving people time to figure out what’s really going on. To be fair, I’m not sure how this affects algorithmic trading, which is not gonna be affected by the emotional aspect and are the dominant players today.
greenshackle2 7y ago
It depends. They can help prevent "artificial" crashes caused by liquidity issues and/or algo-driven feedback loops, and, maybe, to some extent, FOMO feedback loops (everyone is selling so I should too!). If there is sudden mass sell-off, the buy side of the order book can run thin. The order book is supposed to be a representation of people's intentions to buy or sell, but it's no a true representation because people don't necessarily bother putting in limit orders far away from the current price. The halt gives time for people to put in their buy orders and put some back-pressure on the sell-off. It also gives time for traders to tweak or turn off their algos if they are behaving badly. If the crash is a "true" crash caused by fundamentals, in other words the economy is going to shit, I don't see how halting can help much.

cthor 7y ago

> How is that not manipulating the market? Nobody said it isn't. In fact, that's the whole point: manipulate people to chill out, take a few minutes to think, and then get back to it.

nimbius 7y ago
so isnt it bad to manipulate a free market? I know China gets beaten up about it all the time.
- sp332 7y ago
  Stock exchanges are heavily regulated. That's why trades can be made so quickly.
- thawaway1837 7y ago
  The market exists through manipulation (regulation). There is no such thing as a free market that erupts spontaneously. Despite the rhetoric from certain circles, “free” markets are actually highly managed and regulated entities. There’s a reason why places with the best (largely defined as consistent) regulations, and greatest stability are also financial centres. If markets erupted without any regulatory framework then their quality would be highly correlated with the level of anarchy in a place. Whereas the reality is almost the opposite.
- SpicyLemonZest 7y ago
  When knowledgeable people talk about "market manipulation", they're generally talking about secret market manipulation, fiddling with the market structure in private to extract value from it. Wash trading is a good explanatory example; you're tricking people into thinking market volume is higher than it actually is, to get them to do things they wouldn't do if they knew the real story. Setting clear rules known in advance is "manipulation" by some definitions, but it's not really the same thing. There are some people who beat up China for simply setting rules in the market, and they're definitely wrong to do so, although you shouldn't confuse this with people saying the specific rules China sets are bad.

VBprogrammer 7y ago

I think it is mostly required because trades are executed so quickly now by so many bots that it's possible for them to get into feedback loops that are hard to model. Stopping the market gives everyone a chance to decide what parameters to tweak before getting back at it.

sokoloff 7y ago

When you define the rules ahead of time, I think it's perfectly fine. (I tend to be in the camp of "let the market be a market", but these circuit breakers are set well away from any normal market activity, are fairly proportionate, and obviously well-understood ahead of time, so I think they're better [meaning more practical] than my general "let 'em play" attitude.)

thawaway1837 7y ago

Panic is real. And it can be very difficult to undo some of the damage caused by panic. The circuit breakers are a neutral addition. In some cases they may be triggered unnecessarily and are just delaying the inevitable. In others they may have a very real benefit in giving people time to figure out what’s really going on. To be fair, I’m not sure how this affects algorithmic trading, which is not gonna be affected by the emotional aspect and are the dominant players today.

greenshackle2 7y ago

It depends. They can help prevent "artificial" crashes caused by liquidity issues and/or algo-driven feedback loops, and, maybe, to some extent, FOMO feedback loops (everyone is selling so I should too!). If there is sudden mass sell-off, the buy side of the order book can run thin. The order book is supposed to be a representation of people's intentions to buy or sell, but it's no a true representation because people don't necessarily bother putting in limit orders far away from the current price. The halt gives time for people to put in their buy orders and put some back-pressure on the sell-off. It also gives time for traders to tweak or turn off their algos if they are behaving badly. If the crash is a "true" crash caused by fundamentals, in other words the economy is going to shit, I don't see how halting can help much.