"They" don't do anything - this is called a circuit breaker, and is automatically triggered. There are three breakers:
L1 - 7% down before 3:25pm - 15 minute halt
L2 - 13% down before 3:25pm - 15 minute halt
L3 - 20% down - halted for the remainder of the day
Only a single L1 and a single L2 breaker can occur in a single day, e.g. the market falling below 7%, rising, then falling again will not trigger a second L1 breaker, but falling to 7%, up to 5%, then down to 13% would trigger an L2.
FYI this is the kind of thing you have to know to become registered as a securities representative.
To address OPs point, someone did do this. Someone (or more accurately, a lot of people) stepped in and introduced an artificial construct that constrains trading under certain conditions.
It's not intrinsically a "bad" thing per se and it was something already established long before the current set of conditions arose. But none the less, it's an artificial constraint introduced on trade systems that is likely beneficial.
To those who believe that all markets are rational and efficient, that interventions cause more harm than good, y, an enforced halt seems to be anti-capitalist.
But we are not rational actors. We can get into panics. Panics can stir more panic. Forced breaks allow for the market to reassess data for a few minutes without fear of loss for not acting immediately.
You would think, by the same arguments, that the stock market could always just trade at 15-minute intervals. Why not? But people go crazy when researchers (e.g. Eric Budish at U. Chicago) suggest lowering the frequency to milliseconds, let alone seconds or minutes.
There are different, additional, objections to that. For example, it would make life rather difficult for market makers, which would mean a lot of the liquidity would dry up, which means the spread would widen out, which means trading would be more expensive.
I think there is scope for designing market mechanisms which have the volatility-reduction effects of periodic auctions, but which still allow market makers to hedge. I hope people are working on those.
And how is that a bad thing in and of itself? It would presumably knock out some of the ultra-low-margin HFT but so what? If it would have the effect of turning the stock market into less of a roulette table, with fewer gamblers compared to bona fide investors - isn’t that a good thing?
The circuit breakers also have an important function in relation to the role algorithmic traders play - it allows a bit more time for humans to step in and either switch off or tweak the algorithms if appropriate.
T5: Single Stock Trading Pause in Effect Trading has been paused by NASDAQ due to a 10% or more price move in the security in a five-minute period.
T6: Halt - Extraordinary Market Activity
Trading is halted when extraordinary market activity in the security is occurring; NASDAQ determines that such extraordinary market activity is likely to have a material effect on the market for that security; and 1) NASDAQ believes that such extraordinary market activity is caused by the misuse or malfunction of an electronic quotation, communication, reporting or execution system operated by or linked to NASDAQ; or 2) after consultation with either a national securities exchange trading the security on an unlisted trading privileges basis or a non-NASDAQ FINRA facility trading the security, NASDAQ believes such extraordinary market activity is caused by the misuse or malfunction of an electronic quotation, communication, reporting or execution system operated by or linked to such national securities exchange or non- NASDAQ FINRA facility.
H10: Halt - SEC Trading Suspension
The Securities and Exchange Commission has suspended trading in this stock.
Those seem to me be to be directed more at price manipulation of individual stocks (eg pump and dump schemes) than restraining enthusiasm across the whole market. I'm open to correction on this (and will not demand a halt).
I don't know if that's a good way to look at it. It's not just "bears" selling when you have a big drop. It's people who need the money for something and are worried about liquidity.
Trading halts may or may not fix that, but that's their purpose.
> It's people who need the money for something and are worried about liquidity.
Then they're doing it wrong. You shouldn't have money that you need immediately in the stock market. Yes, people will do that anyway, but I'm not sure we should cater to those people when the health of the markets as a whole are at stake (assuming circuit breakers are effective; up for debate).
It's a question of velocity - markets go up and down all the time... but speed breaks to prevent the market from going down to fast also need to prevent the reverse case - some sudden inexplicable and extreme price spiking.
Basically - we should protect against any really dramatic sudden changes as chances are that something is wrong.
In the last year the S&P grew ~22% prior to this recent drop, that's fine... and on a day swings in the low single digits might be fine. But if we woke up tomorrow and the S&P had recovered the pre-drop value and then grown 20% over that price - something weird is clearly going on and we should be worried.
Has any stock or financial instrument ever been valued at infinity? I don't know enough about finance to rule that out and it seems unlikely but at least possible.
For instance here is a toy example of unbounded value:
Consider a market for a stock in which the only market participants are two bots with the behavior that they trade the stock back and forth at an asymptotically increasing price. The buys are backed by loans from a zero interest government bank. Since the bank is efficiently hedged to losses. Both sides of the trade owe the bank, the seller can also pay the bank the money the bank needs to back the buyers loan. Thus, the bank could allow both these loans to go to infinity causing the value of the asset to approach infinity.
Similar things have happened with flash loans in the cryptocurrency space.
Especially relevant today since after hovering around -5% for most of the session after the first halt, right now we're at -6.9% and threatening to push below 7% again.
It's only a 15 minute halt. So if you hit 7% and trigger L1, trading is halted for 15 minutes, but then it resumes. If it drops down to 13% another 15 minute trigger happens.
But each of the L1 or L2 can only occur in a single day, not one or the other. You can hit L1, and then later hit L2, but you can't hit L1 twice.
As I understand GP: L1 and L2 can each fire only once per day. So if you hit L1, and after a brief rebound the market still goes down, you'll hit L2. If after that it still keeps falling, it'll get stuck at L3.
L1 hit today and there was a 15 minute halt this morning. If the S&P continues to plunge and hit -13% during today, there will be another 15 minute halt.
They have existed since the crash of 1929. There were no algorithms in place then. The goal was just to force human traders caught up in the moment to take a break and stop panicking.
I assume they have been tweaked since 1929, but they started with the crash back then.
Edit: someone else is claiming 1987 as the start. My memory says 1929. If this matters do your own research.
> Regulators put the first circuit breakers in place following the market crash of October 19th 1987, when the Dow Jones Industrial Average (DJIA) shed 508 points (22.6%) in a single day. The crash, which began in Hong Kong and soon affected markets worldwide, came to be known as Black Monday.
> In 1933, the U.S. Congress passed the Glass–Steagall Act mandating a separation between commercial banks, which take deposits and extend loans, and investment banks, which underwrite, issue, and distribute stocks, bonds, and other securities.
It probably doesn't make sense for an individual actor to stop trading when all the assets it holds are tanking. Everyone's selling to cut their short-term losses. Crashes aren't always feedback loops.
You do not want to trust your market's health to some random trading firm's coding skills and goodwill, just like you wouldn't open up a public webservice without some basic rate-limiting.
> Only a single L1 or L2 breaker can occur in a single day.
Then why does L2 exist? It seems redundant, L1 would get triggered before L2, and only one can occur in a single day, so why have L2 at all? What am I missing here?
Edit: Also, anyone who downvoted me for posting the same question as someone at the same minute, you know what to do.
No matter how much you didn't deserve downmodding, complaining about them only invites more. You have a better chance of recovery by not bringing them up, and the News Guidelines ask that you don't.
Please don't comment about the voting on comments. It never does any good, and it makes boring reading.
It's true that such comments are annoying, but they're necessary as a feedback mechanism to regulate the site. Otherwise the site guidelines would have negligible effect.
They're more tedious to write than to read, if that helps at all.
Mass sell offs tend to create unorderly markets, which is not beneficial for anyone.
The concept was introduced in US equities after the ‘87 crash, but was only consistently implemented for NYSE-listed stocks. In ‘13 these were made consistent and market wide (thus MWCB), set against a widely published value of the S&P (so that the control was predictable; thus how it executed today).
FYI, there are also bidirectional halts that exist intraday (Limit-Up/Limit-Down) that serve a similar purpose and control rapid, uncontrolled movements in individual stocks. These are also defined in exchange regulation and are well defined so that they are predictable.
Pareto efficiency does not apply, because it is a theoretical construct that assumes perfectly rational actors. It's useful for thinking about the market, but not an actual law.
Exactly, and when you have an unorderly market, price discovery becomes problematic.
It’s the same reason the single stock LULD bands exist (which put the brakes on both rapid downward and rapid upward movement). Stopping for 15 minutes (or 5 in the case of a LULD pause) is not detrimental to the process of establishing orderly price discovery.
In the event a stock is going to keep rising or falling due to legitimate changes in valuation it will continue to do so (look at NASDAQ’s halts page today to see stocks that have hit their bands multiple times).
Really it's just saying "the market is now closed". But you can still sell those securities on other markets or direct to someone who wants to buy or sell.
Having worked for one of the (smaller) big firms, and had a chance to watch from the sidelines and seen how days like this work: No, these circuit breakers don't screw the regular guys. They discourage the regular guys from screwing themselves.
There are a lot of firms whose core business strategy is to keep a level head and take advantage of people who panic and (over)react on days like this. They get damn rich doing it, too.
> They discourage the regular guys from screwing themselves.
If you're a little guy who believes that, say, 2019ncov is about to tear the world a new asshole, that's probably a decision you'd like to make for yourself.
I don't doubt what you're saying, but it's a matter of perspective. Sometimes the "panic" is the correct reaction. We're sitting on top of a perfect storm which is shaping up to be a massive potential black swan. And with the current circuit breakers, trading is only interrupted for something similar in concept to "the 99%".
Across all indicators, too! Oil price, US markets, international markets, t-notes, gold price, and a bunch I'm probably not aware of because I'm not a professional investor. China just shut it's economy down for two weeks. Long term outlook is rightfully poor.
Panic is almost never the correct reaction. Deciding that there's going to be a downturn and you should prepare yourself for it financially is one thing, but under what circumstances would it be optimal for you as an individual to panic-sell?
In my mind, panic is the thing you do when you realize that you haven't prepared. That you don't have enough resources for an extended downturn, that you're financially over-leveraged, and that you are in danger of losing your home and being unable to feed yourself and your family. There are TONS of people who are experiencing this right now in China and Italy, and many others of us who will be experiencing it the next few weeks in the rest of the world.
But panic also implies that you don't have time to fix that, and there's nothing you can do as an individual to change it. If that's the case, you probably don't have a lot of investments in the stock market anyway. Or if you do, and you're over-leveraged in the markets because you were gambling with your money instead of investing with it, then yes, you're panic-selling right now.
Panic sell is the correct thing when your doctor gives you a short time to live. Since your money will be worthless no matter what happens you may as well get it all now and spend it on whatever can buy a moment happiness.
There is an exception if your religion lets you take your stock with you. I don't believe in one, but I guess if you want to.
But that exactly is one of those fallacies. If 2019ncov "tears the world a new ..." then your shares are going to be worth about the same as bills in your hand: nothing. Nobody will seriously risk their health for money.
And what's the rational thing to do in such a case? Let's say you're at a poker game. And you have a deal: you lose, you get shot, you win, you get your winnings. What is the rational thing to do?
You should go all-in. It is one of the very few cases it is actually rational to do that.
The idea that the little guys largely have a chance actively trading in a fast moving market like today’s where they are gonna be crushed by algos is ridiculous to begin with.
If anything this is helps the little guy, by not completely crushing their stock value, and hurts the big guys who can outlast huge swings (something little guys cannot).
Market makers are buying - their job is to always buy or sell stock from everybody. They (generally computers, but humans traditionally) will always buy your stocks, or sell you stocks. Their algorithm is simple: buy for $.10 (or some other tiny number) less than you sell - if the amount of stock owned is too low raise the price, if the amount is too much lower the price. They pretty much always make money in the long run.
For agreeing to do this (and having the capital to do it) the Market Maker for a stock typically secures certain benefits from the market in respect of that stock.
For a very popular stock on a typical day the market maker isn't really necessary. Your trades would absolutely execute immediately based on positions other people wanted.
When your stock is more thinly traded, or when things are a bit frantic the market maker is your saviour. When everybody and their dog is selling, the market maker will buy anyway.
Under some circumstances market makers can signal they intended to cease to make a market for specific stocks. When the market makers exit, all hobbyists should make sure they are gone too. Once there is no market maker for the stock you're holding, you will need somebody else to actually take the other side of your trades. "Prices" without a market maker are just a guess, there may be nobody actually promising to take your stock at any price, even if the last trade was for $1.40 your stock might be not sell even at 14¢. This makes for an exciting space in which to gamble with money you can afford to lose if you really know what you're doing, otherwise it's just a way to throw money away.
In large part these are designed to break the feedback loops that can happen in automated high frequency trading and give humans a chance to look at things. These policies were implemented by all the stock exchanges after flash crashes triggered by ML algorithms encountering something "weird" and going into hard sell mode.
The breakers were originally implemented as a response to Black Monday in 87, which was before algorithms were so dominant, but it happens that humans are really good at panicking and acting irrationally too.
87 had a significant algorithmic element to it too though according to many accounts via "Portfolio insurance" products which were algorithmically traded, as well as traders arbitraging between the index futures markets and the cash market.
From the 1988 "Report of the Presidential Task Force on Market Mechanisms : submitted to The President of the United States, The Secretary of the Treasury, and The Chairman of the Federal Reserve Board":
---
Our understanding of these events leads directly to our recommendations. To help prevent a repetition of the events of mid-October and to provide an effective and coordinated response in the face of market disorder, we recommend that:
• One agency should coordinate the few, but critical, regulatory issues which have an impact across the related market segments and throughout the financial system.
• Clearing systems should be unified to reduce financial risk.
• Margins should be made consistent to control speculation and financial leverage.
• Circuit breaker mechanisms (such as price limits and coordinated trading halts) should be formulated and implemented to protect the market system.
• Information systems should be established to monitor transactions and conditions in related markets.
That's hardly symmetrical to the fear of losing the money that you have already invested – investors feel they have no choice but to sell before it gets worse, whereas in the rally you can always choose not to buy.
> That's hardly symmetrical to the fear of losing the money that you have already invested...
It's pretty symmetrical. Choosing not to buy is not as easy as it looks, when you are under pressure to do so. Madoff took advantage of this. The crash of 1929 was preceded by unhinged buying.
One view of the circuit breakers that Matt Levine just discussed this morning is that they help to avoid price drop due to liquidity issues. That is, algorithmic trading aside, many trades are still done by human beings who may not be paying rapt attention when a crash happens. The 15-minute pause gives them time to find out that something is up, at which point they may choose to start buying at the depressed prices, which will stabilize things. This also makes sense with the fact that the L1 and L2 breakers only trigger once each, once an L2 breaker has triggered everyone will probably be paying close attention to what's going on traders simply not being at their desks will become less of an issue.
These are well documented rules. They have been built up over years of experience. Not to say its perfect. But they are established and understood by the participants. Further refinements may happen based on today's experience.
Without going into too much detail, short answer is yes. Most people don't seem to know how far away current setup is from 'free market' touted in school.
It is weird given that this information is not hidden. It is just not widely spread.
I'm a fan of free markets and I'll be the first to admit that it's nonsense to have a black and white perception of the world. It's not either 100% free markets or state-driven economy. There's a huge world in-between both extremes. Being a fan of free markets simply means you err towards one side more than the other.
Having common sense regulations and tools like circuitbreakers are fine with me. I wouldn't say it's meaningfully less of a free market just because we have these tools in place to protect us against the automation we use.
The stock exchange is privately owned, the owners/management of the NYSE and other exchanges chose to implement circuit breakers like this. The exchanges still have to operate within the bounds of regulations, but nothing is stopping Joe Blow (other than capital, expertise, navigating regulations, etc.) from setting up his own stock exchange that doesn't have any circuit breakers put in place to prevent flash crashes.
> from setting up his own stock exchange that doesn't have any circuit breakers put in place to prevent flash crashes.
If you are facilitating the trading of regulated instruments this is wrong and there are indeed SEC regulated circuit breakers you will have to implement.
"Free market" doesn't mean "no government regulation". It means that the market responds purely to supply and demand. Government regulation can distort the response of supply and demand, but so do monopolies and lack of information parity between buyers and sellers. From what I've been reading here, the trade halts help prevent a situation where prices are effectively unknown because there are not enough buyers. Such a system is not a "free market" because information is not communicating between buyers and sellers. It sounds like the timeout helps people who want to buy stop panicking and discover what price they are willing to buy. Effectively it gives time for price information to get transmitted across the system. This actually helps restore free market. (Other government regulation, like trust-busting can also have this effect.)
Would you care to elaborate? I would argue that guard rails and controlled falls are in opposition to actual free market. The qualifier 'completely' seems misplaced.
These rules are chosen by the participants. By the owners of the property. They are not government imposed.
Consider an analogy. Suppose you were a stamp collector and you wanted to run a weekly stamp exchange. You and your fellow collectors may establish rules about how the trading should happen and the agreed upon behaviors. By-laws if you will. You could of course have no rules. Or you could choose some that promote the overall longevity of the venue and that encourage robust participation. The choice is up to the owners. Both are free. But one will be more successful than the other.
Sure, but I think it makes sense to say that one market is more free than another, even when neither is controlled by a government. In many cases the reasons why it's good for governments to allow free markets are also reasons why its good for private entities to allow free markets.
Free markets are about voluntary interaction. This is a group of people deciding the rules that they'll trade with voluntarily. There's no reason the hours are what they are - the market could be open 1 hour or 24 -- deciding the opening times doesn't not mean it's not a free market.
Hmm, the problem with analogies is that they are analogies. I don't think NYSE or ICE has the same kind of impact on the market as a stamp collectoe. Hell, NYSE is almost literally the market. Thus any rules enforced by it are, for all practical purposes, market rules. They may agree with themselves that saving the market is the right thing to do, but guiding it does not make it free. It makes it not free.
I think you are misrepresting my argument and attempt to dismiss it in an odd way.
I am arguing that rules set up by the market do not automagically enforce free market. I am arguing that rules explicitly do the opposite by introducing guard rails, which DO restrict movement in that free market.
Do you honestly believe that rules derive its effects from who sets them up?
To be perfectly honest I’m not sure I find your argument coherent at all.
Can you define what you mean by free market? Is two parties freely coming to a mutually beneficial agreement that they are then constrained by (i.e. a contract) consistent with that definition?
Two private parties, an exchange and individual trading firms, have freely agreed to a set of rules in order to transact on that exchange. What about that is not consistent with the free market?
Well, first I would like to point out that in your example there are three parties with the exchange being the intermediary and trading firms transacting.
Assuming you agree with my characterization, on the surface nothing about the transaction facilitated by the intermediary makes it not consistent. You have my full support here.
Now, your argument appears to revolve around knee jerk reaction to me saying that in real free market, the rules would not artificially prop the market. My argument is that in a true free market, the rules would not restrict it arbitrarily.
Ergo, we do not have a truly free market, but just a reasonable approximation agreed for by various parties.
> Well, first I would like to point out that in your example there are three parties with the exchange being the intermediary and trading firms transacting.
The agreement to restrictions is still between two parties, but you can read it as "two classes of parties" if it makes you feel better.
> Now, your argument appears to revolve around knee jerk reaction to me saying that in real free market, the rules would not artificially prop the market. My argument is that in a true free market, the rules would not restrict it arbitrarily.
It seems like you're confused about a couple of concepts here and I think it may stem from overloading the words "free market" and the concept of "the free market" generally.
The stock exchange, like any real world marketplace, has many restrictions on trading. These make it a market that is not free in the sense that you cannot trade however or whenever you like. However, the free market is a distinct concept from any individual exchange. It means that parties involved in the open market (i.e. everyone) are able to freely exchange goods and services as they choose. This may involve entering into agreements (like contracts) that restrict future actions, but as long as those agreements are freely agreed to, this is still consistent with the concept of a free market generally. Thus, the fact the stock market has restrictions is still consistent with the concept of a free market so long as the participants freely agreed to those restrictions.
The reasons for that, both in private institutions like stock exchanges, and in terms of regulation, have mostly to do with how hideously volatile 'freer' markets tend to be, and the frequent, devastating effects banking crises, panics, etc used to have.
Yes, they've been put in after previous panics. I've always thought it rather odd that there aren't any corresponding restrictions on sharp upward movement, since euphoria can be just as dangerous as panic.
IIRC this was instituted after the crash of 1987, when they realised that automated trading could set off a crazy plunge. At any rate, it's public knowledge, not some sort of ad-hoc manipulation.
"We" (the group of people represented by the government) do not control the algorithms, so we can't easily and without many other side effects force that to happen. We do (indirectly) control the stock exchange rules, so we can put systems like this in place that limit the damage done to us when it does happen.
Heh, yeah but it's an adversarial problem. Do you assume the other bots are going to "do the right thing" and not intensify the panic? Maybe not. Maybe you just act on immediate information and try to optimize your position for the next few milliseconds.
> Seems strange that the market is kinda able to be manipulated like that.
You might consider it manipulation, but these circuit breakers have been in place for a long time now, IIUC ever since the major market crashes of the 80s when there was no way to slow down the drop. The idea is to potentially lessen panic selling by allowing more time for more information to come to light which might mitigate some of the volatility.
Of course, there is no guarantee that better news will surface in the meantime, but even if the eventual slide will be much larger, its better that it takes place over several days to allow counter-measures to be put into place.
The markets are not a public utility, they have owners (I own a teensy, weensy piece of NASDAQ (NDAQ), for instance). The owners can do what they want, within regulations. Use whatever metaphor works for you, but after 1987, it was thought to be a good idea to have an automated breather so that we can get our collective heads back in the game instead of panic-selling.
There is, however, no "liking" or "disliking" market direction. It's automated, with clearly-outlined rules. There's no manipulation; if A, then B.
There is no market separate from society that has any “interests” such as not being manipulated. We get to design such systems in whatever way best serves us.
It’s funny how this “ideology of the pure market” has become popular. This idea here is essentially the same as the outrage when obviously wrong transactions are rolled back. The number of people willing to, or entirely oblivious of the possibility not to, let (others) be harmed by fraud or mistakes, in pursuit of some romanticized purity is astonishing.
There's a great book on behavior like this, "Extraordinary Popular Delusions and The Madness of Crowds" by Charles MacKay. It was first published in 1841 but feels like it could have been written today. McKay was editor of The Illustrated London News in 1850's.
It's not meant to manipulate the market, it's meant to stop a flash crash from automated trading. It gives people time to recalibrate their algorithms if something is faulty. If the fundamentals are such that it should continue to go down, then it will continue to go down.
It’s really more a protection against recursive trading loops by HFT systems.
In the flash crash (2010), it was later determined that the largest part of the drop was driven by competing systems racing to the bottom solely because competing systems were selling off too.
The trading halt is a result of previously established exchange rules. It's not a manipulation, it's a guardrail that is visible to every market participant.
If the price is going to go lower for an organic reason, it will go lower regardless of a brief delay.
That's funny. But I was only pointing out that this is akin to markets saying: this game only works as long as we can change the rules. This kind of statement is not conducive to trust. Unfortunately, the whole financial field needs trust to thrive.
I'd agree if the rules had been changed on the fly, as a response to the current events, but they weren't. The rules were known and they were activated as expected.
Those circuit breakers are not to allow people to come back from "panicked feelings". It's to stop algorithms from deterministically destroying hundreds of billions of dollars.
I trust electricity to be generally a safe and efficient way to improve my life, but I also sure as hell want circuit breakers in place to keep my house from burning down.
I believe it's true for the other direction as well, it's just pretty rare to see a 7% upward move in a single day. I mean, it's rare to see it on the downside too, but not as rare.
Limit up/down rules are not discretionary. They're circuit breakers that fire deterministicly.
It's important to note that limit up/limit down (LULD) is not the same thing as the circuit breakers. They have a very specific meaning and operate independently (with much more complicated rules as well). You probably know this, but others reading your comment will probably not!
There is also no automatic upside circuit breaker.
I too think it's inane. Some of us want to get into the market but not at these prices. Yet the whole system is built around trying to push markets into higher and higher prices at all times.
Here's a brilliant idea, introduce a rule that says you can only sell a security for more than what you paid. Voila, endlessly rising prices forever!
When you think about it, the whole market sort of follows these arbitrary-seeming rules. The actual prices of stocks are constantly changing 24/7/365, but the market is only open from 9:30am-4:00pm on weekdays excluding holidays.
In my part of the world, tell your broker that you’ve done a deal with someone, tell that someone to tell their broker that they done a deal with you. The brokers should be able to report it to the exchange for publishing. Then they should see through the clearing and settlement. Of course your brokers might feel that your little deal is just not worth the hassle, and ask you to take your business elsewhere.
You ask your broker for the physical copy of the stock certificate. The buyer asks their bank for some physical cash. They hand you the cash, you hand them the stock certificates. Same as buying or selling anything else, basically.
Of course, for a transaction of a certain value, you wouldn't want to hold the cash or certificate, so instead you write out a contract and sign it at the moment of exchange. Which is the same as buying or selling something else (e.g. car, house) beyond a certain value.
> The actual prices of stocks are constantly changing 24/7/365
They are not. For any meaningful interpretation of "actual", the only price is the market price during trade hours. Speculative overnight agreements between private parties at agreed-upon values are contract agreements. The stock price doesn't change between market close and open.
Is it the bid? Is it the offer? Is it the last trade? The VWAP?
The stock market only tells you where shares have traded and where the order book would trade them. There is no observable "actual price."
A useful way to think about the price is to imagine a theoretical fair value that is always changing, and a theoretical bid/offer that is always floating around the fair value.
This theoretical fair value is not posted anywhere. Some people give the name "price discovery" to the process of identifying where the theoretical fair value lies. With liquid stocks like AAPL on calm days, price discovery is a simple affair. With other assets, price discovery can be more opaque.
When the stock is trading steadily at high volume, then sure. The last trade is a great representation of the theoretical fair price. But in choppy trading, when there are dislocations between related assets and spreads are wide? The last trade is not representative of the whole picture.
Consider assets whose transactions must be reported to TRACE. If you are long, you have an incentive not to sell aggressively because a downtick will mark down the value of your position. So what's the fair price? Is it the last trade? Not necessarily, because that trade may not represent the current state of the market.
Also, there is generally some illiquid trading taking place pre-/post-market. And US futures trade overnight in other markets. And companies may be exposed to assets that trade outside of US trading hours (eg, refiners that have storage tanks full of crude, or companies that have currency exposure).
> “There’s a reason why they have those circuit breakers -- it’s to give people time to come back from panicked feelings,”
Seems strange that the market is kinda able to be manipulated like that. I'm not saying this is a bad move, just surprised that someone can do it.