Trading disruptions: What they are, what causes them and how they affect your experience on TBanque
For over a decade, TBanque has been at the core of the Fintech revolution. With over 25 million registered users, TBanque is the world’s leading social investment network. At TBanque, we offer our users a wide variety of assets to trade and invest in.
Though investing is easier today than ever, sometimes things don’t go exactly as planned. At TBanque, we take sufficient measures to ensure the safest possible environment for our users. As trading disruptions happen from time to time, we’re here to explain what they are and what you can and cannot do when they happen.
What are trading disruptions?
Trading disruptions are situations in which markets cease to function regularly, usually defined by fast and extensive movements in the market. There is no one specific reason for trading disruptions. They can derive from unusual trading (such as a crash or a pump) or physical threats to the stock market, such as a war, for example. No matter what the case is, trading disruptions are a result of the unusual conditions in the market, which can cause panic and disruptions to trading.
After the 1987 market crash, circuit breakers, price limits, and other systems were installed in order to minimize the risks associated with trading disruptions. These systems are intended to halt trading in cases of rapid declines in the markets.
Examples of trading disruptions
Trading disruptions can happen when there’s a drastic movement in the markets, driven by concerns among investors that various factors could cause extensive issues that might slow down markets. Market halts and disruptions happen for many reasons, as seen in recent history.
2020 was a wild year for the stock market, due to COVID-19 and the massive effect it had globally. Back in March of that year, for the first time since 2008, Wall Street went through what could be called a crash, with the three major indices registering large percentage losses. On March 16 of that year, shortly after the market opened, the SPX500 fell 7%. Circuit breakers went into action and trading was halted for 15 minutes. It was the third halt that week, following ones on March 9 and 12.
Technical issues might also cause market halts, such as the one that occurred on July 8, 2015, when a technical glitch halted the New York Stock Exchange for several hours. The tragic events of September 11, 2001 also led to a halt, with markets remaining closed until September 17.
Why you might not be able to open or close a position
Lack of liquidity, or inability to receive pricing from our liquidity providers
Whenever a user wishes to open or close a trade, there has to be a counterparty. This means that someone else must be willing to buy what you are selling, or vice versa. If a counterparty cannot be found, or if there are not enough buyers or sellers in the market, this will result in the inability to open or close a trade. This is what we refer to as ‘lack of liquidity’.
The stock might be halted by the exchange
The Exchanges have a broad mandate in terms of halting, and can halt specific stocks from being traded, usually due to one or more of the following instances:
- Extreme Volatility: Stocks can be halted due to irregular trading the exchange wants to investigate.
- Low liquidity: Stocks can be halted due to lack or low liquidity.
- News events: Stocks can be halted due to pending news. For example, if news comes out regarding a certain stock, the exchange might halt it for a few minutes to give investors time to catch up.
Inability to open SELL positions due to an asset being unborrowable
Short selling is when an investor borrows a stock and sells it, planning to buy it back later at a lower price. An unborrowable stock is a stock that won’t be lent out to short-sellers, which might happen when there is no one willing to lend out the stock. On TBanque, the sell side of an asset is not available when the stock is unborrowable.
Extreme volatility on different asset classes
Stocks and indices aren’t the only asset classes available on TBanque – we also offer cryptos, currency pairs, commodities and ETFs. TBanque has its own internal circuit breakers that are active across all asset classes. When we identify extreme volatility on an asset, the circuit breakers might go into effect and temporarily disable the ability to open/close positions.
TBanque Circuit Breakers
TBanque also has safety mechanisms in place. They are called circuit breakers, as they are emergency measures used to halt trading in unusual cases. On TBanque, they are prompted by these occurrences:
- Whenever a spread is over widened a circuit breaker is triggered. This means that whenever a difference between the ask prices and the bid of an asset is too big, or over-spread, there’s cause for a trading halt.
- Technical issues can also trigger safety breakers
Need to know more?
If you are still unsure about what you can do during such events, or if you have any questions regarding a specific trading halt in real-time, don’t hesitate to contact us.
This information is for educational purposes only and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to, buy or sell any financial instruments. This material has been prepared without regard to any particular investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past performance of a financial instrument, index or a packaged investment product are not, and should not be taken as a reliable indicator of future results. TBanque makes no representation and assumes no liability as to the accuracy or completeness of the content of this guide. Make sure you understand the risks involved in trading before committing any capital. Never risk more than you are prepared to lose.
