Trading halts are typically something you see when day trading. Usually they occur when there’s news, order correction, a technical glitch or the SEC is concerned with something. Sometimes there is just massive volatility, and the whole market will stop dead in its tracks, and not trade for a period of time (to cool off).
A trading halt is the temporary suspension of trading for a particular security or securities at one exchange or across numerous exchanges for a specific amount of time. In other words, a halt puts a stop to trading for a period of time for an investigation. Halts can happen numerous times throughout the day and have various duration depending on the situation.
Have you ever been in the middle of a day trade that’s flying and all the sudden there’s a trading halt? That isn’t always a fun feeling because you don’t know when the stock will resume or what direction it’ll resume in. Halts can be nerve wracking for traders, and some will avoid the types of stocks that have a greater chance of halting (low float stocks for example)
However, the move that usually results in a halt is pretty fun, if you are on the long side of the trade and its spiking in a favorable direction. Parabolic movers move a large amount of volume and the price jumps quickly. This usually occurs because of an institutional traders careless order, news good or bad, or buy and sell orders triggering when support or resistance is breached. (Buy stops!)
That causes the stock to usually shoot up in price a lot and quickly. The SEC sees that and issues a trading halt. This is called a volatility halt and is a L.U.D.P code. In essence the price freezes until the halt is over. Volatility pauses are 5 minutes. L.U.D.P stands for limit up, limit down by the way and are only triggered if the average price of the stock goes up or down more than 5% in 5 minutes time.
There’s no time limit on some trading halts. That means it can last a couple months or forever, depending on the issue.. In fact, some stocks have halted and never resumed trading. What happens to the people that were in trades with that stock? Usually it’s a lost trade for them.
Some stocks will stay halted for up to 6 months. If you’re in a stock that halts for that long, you have to wait for it to resume. There’s really nothing to be done.
Many times however, trading halts resume within minutes. Open orders that haven’t been filled when a trading halt occurs can be canceled. That way you don’t end up on the wrong side of a halt that resumes trading.
An example of a halt from 10/22/2020. The price moved greater than 5% in 5 minutes triggering the halt
The Codes and Meanings
Below is a list explaining all the different codes and meanings.
|Trade Halt Code||Trade Halt Description|
|T1||Halt – News Pending|
|Trading is halted pending the release of material news. (this could be good or bad news) Bad news would be an “offering” Good news would be a buyout, for example|
|T2||Halt – News Released|
|The news has begun the dissemination process through a Regulation FD compliant method(s). (News is out and its time for the market to digest it)|
|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. (a Stock is moving too fast and the exchange pauses things to calm it down)|
|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. (this is a potential glitch that the exchange feels needs to be fixed and thus the market pauses while they fix it)|
|Halt – Exchange-Traded-Fund (ETF)|
|Trading is halted in an ETF due to the consideration of, among other factors: 1) the extent to which trading has ceased in the underlying security(s); 2) whether trading has been halted or suspended in the primary market(s) for any combination of underlying securities accounting for 20% or more of the applicable current index group value; 3) the presence of other unusual conditions or circumstances deemed to be detrimental to the maintenance of a fair and orderly market. (self explanatory here)|
|T12||Halt – Additional Information Requested by NASDAQ (the company must answer questions that the Nasdaq has asked)|
|Trading is halted pending receipt of additional information requested by NASDAQ.|
|H4||Halt – Non-compliance|
|Trading is halted due to the company’s non-compliance with NASDAQ listing requirements. (This is bad! The company has made a serious error and has serious concerns)|
|H9||Halt – Not Current|
|Trading is halted because the company is not current in its required filings. (Also not good, probably something they can fix, but takes time)|
|H10||Halt – SEC Trading Suspension|
|The Securities and Exchange Commission has suspended trading in this stock. (They usually have a good reason for this, and these types of halts could be indefinite)|
|H11||Halt – Regulatory Concern|
|Trading is halted in conjunction with another exchange or market for regulatory reasons.(Not terrible but could cause the pause for a few days or weeks usually)|
|O1||Operations Halt, Contact Market Operations (Minor)|
|IPO1||HIPO Issue not yet Trading (Initial public offering issues, usually fixable fairly quickly)|
|M2||Quotation Not Available|
|LUDP||Volatility Trading Pause (The stock is moving too fast , maybe 5% in a single 1 minute candle, for exaple)|
|LUDS||Volatility Trading Pause – Straddle Condition|
|MWC1||Market Wide Circuit Breaker Halt – Level 1 (This probably means the market is tanking fast)|
|MWC2||Market Wide Circuit Breaker Halt – Level 2 ( this means the market is tanking fast or there are major communications problems)|
|MWC3||Market Wide Circuit Breaker Halt – Level 3 (It’s the end of the world! Just kidding, its just another level of the halt and it could be a big deal or event affecting the stock market)|
|MWC0||Market Wide Circuit Breaker Halt – Carry over from previous day (market is closed for volatility due to an event and no one can buy or sell until politicians quiet the noise 🙂|
Breaking Down a Trading Halt
Many times news, good and bad, causes a dramatic price swing. As a result, companies will agree to give news to the major exchanges before it hits the public. This is often times why news is released after hours.
That gives traders time to decide how they want to play a stock. However, there are times that news will come out during trading hours. As a result, the exchanges will halt a stock. The reason for this is they want the information to get out there fairly.
Although, if you’re in the stock that’s halted, you may not see that as fair in the moment. There are many things that can cause a trading halt. For example, a company’s financial status changing, merger and acquisitions, or a restructuring of a company.
Sometimes a company will issue a recall on its product or there are changes to upper management. If you trade using fundamental analysis, then you know that management can make or break a company.
There are legal issues that can stop a company from being able to function properly. All of these things are components to cause trading halts. Many times halts occur on small cap stock like penny stocks.
Our trade room are up on any halt that occurs; especially when our members are in the trade.
Why Do They Occur so Close to Market Open?
Doesn’t seem like trading halts occur pretty quickly after the market opens? Like we stated above, many companies wait until after market to release news. It gives traders time to make a plan.
However, it can also cause the buy and sell orders to get out of whack. As a result, an exchange can decide to halt a stock when the market opens in order to get the buying and selling under control.
How Long Do Trading Halts Last?
- Trading halts typically last 5 minutes. The SEC has the power to halt a stock up to 10 days if they feel they need to investigate a stock further. There are times the SEC feels that trading certain stocks is unsafe for the public. Usually this occurs when a company hasn’t filed its financial reports or statements. There are times when a halt lasts much longer then 10 days though.
That’s when your funds can be trapped in a halt. However, when a halt lasts longer than 10 days it’s referred to as a trading suspension. Make sure to find a service that isn’t pumping stocks that could cause a halt.
Trading halts put a temporary stop to trading certain stocks. Many times they’re stocks that have a lot of volatility. Since day traders are hunters of volatility, these can be attractive stocks to trade. With anything in trading, it’s all about being safe and trading proper risk management.