What Is Limit Up Limit Down?

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It just went into affect. You should know about it.

TheStreet breaks it down. Let’s get to work.

Recently, the global stock market has plummeted out of its bull market mode and into a bear market, as the Coronavirus has effectively shut a large portion of the global economy down.

On down days in the market, stocks fall by more than 4% or 5%. On rare up days, they rally by a similar magnitude. A big one-day move is usually around 1% or 2%.

This volatility can cause all sorts of problems in markets and for investors — and even your 401K.

So in order to protect from too much volatility without really interfering with the usual course of market movements, securities exchanges and the financial industry regulatory authority (or FINRA) jointly agreed to create a limit-up-limit-down-rule.

This rule establishes a band of price movement that can’t be exceeded. so prices can’t swing by too large a percentage in ether direction. When the average price movement on an index swings to that threshold, the rule kicks in. It kicks in after 5 minutes of that intra-day move stay put.

Then, there is a 5-minute trading pause to allow the market to stabilize, as the rule hits. That’s similar to a circuit breaker. 

There are specifics. To see those, watch the quick video above. 

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