Fast Market

What Is a Fast Market?

A fast market is a market condition that will be formally declared by a stock market exchange when the financial markets are encountering unusually high levels of volatility combined with unusually heavy trading. Fast markets happen rarely, however when one happens, brokers are not held to similar limitations as they are during a customary market. A fast market might happen in light of positive or negative events.

How a Fast Market Works

At the point when a fast market happens for a specific security, it can create a setback for the electronic refreshing of its last sale. Unpracticed investors are bound to get scorched in a fast market in view of the unique issues that emerge under such extreme trading conditions. Brokers may likewise not have the option to take care of requests when investors need or anticipate that they should. Thus, their securities might be bought and sold at undesirable price levels that don't give the return the investor anticipated.

Fast markets are rare and are triggered by highly unusual conditions. For instance, the London Stock Exchange (LSE) declared a fast market on July 7, 2005, after the city encountered a psychological oppressor attack. Share prices were falling decisively and trading was outstandingly heavy.

Special Considerations

The Role of Circuit Breakers in Fast Markets

Circuit breakers were first presented after the 1987 stock market crash. Initially, the circuit breaker rule halted trading in response to a 550-point drop in the Dow Jones Industrial Average, however in 1998, the trigger points were overhauled to become percentage drops. While early circuit-breakers involved the Dow Jones Industrial Average as a benchmark, presently the S&P 500 decides if trading will stop on the off chance that a market begins moving too fast.

Purported circuit breakers are planned with the intent to assist with stemming panic in the event of a fast market and a sharp decline in stock values. The criteria for triggering a far reaching trading halt are as per the following:

• 7% decline in the S&P 500 before 3:35 p.m.: If the S&P 500 falls 7 percent from the previous meeting's close before 3:25 p.m. ET, all stock-market trading halts for 15 minutes.
• 13% decline after stocks resume: After stocks return, it would then take a 13 percent decline by the S&P 500 before 3:25 p.m. to trigger a subsequent trading halt, which would likewise last 15 minutes.
• 20% decline following a subsequent trading halt: After a subsequent trading halt, it would take a decline of 20% to trigger a supposed Level 3 circuit breaker. When a 20 percent drop happens, trading is halted until the end of the day. Likewise note that after 3:25 p.m., stocks just stop trading in the event of a 20 percent drop.

Highlights

• A fast market might happen due to positive or negative events.
• In a fast market, statements can become mistaken when they can't keep up with the pace of trading.
• Also, brokers will most likely be unable to take care of requests when investors need or anticipate that they should.
• A fast market is the point at which the financial markets are encountering unusually high levels of volatility combined with unusually heavy trading.