The trading job can be a lot more complex unless you explore the basic phenomena related to the trading world. It is how, when working as a trader or investor, you gain confidence over tactfully handling puzzling situations like t1 halt. It’s almost impossible for any full-time day trader to avoid the circuit breaker halts from time to time. However, you need to understand what t1 halt is, what causes it, and how to deal with it?
Thus, the stock market is never free of halts’ risks, nor it previously had been. Like the Black Monday on August 24th, 2015, experienced more than a thousand circuit breaker halts. It was one of the most extreme phases with circuit breaker halts in the entire market. It experienced more than thousands of halts to prevent an entire market crash. Also, there were 5 min volatility pauses. The traders faced the toughest time in their trading business due to these halts and circuit breakers.
The trading halts are caused most prominently since it allows the market to digest certain meaningful information about the stock company.
This information might include a drug approval, a development on the company’s financial health, a potential buyout, a new partnership or deal, or any other major news headline.
Another reason why these halts are caused is that they intend to prevent extreme swings in the stock prices over a short period.
For instance, when the stock moves up or down within 5 minutes, an automatic circuit breaker halt is caused. It pauses the trading for at least 5 mins; thus, no further trading can be carried out within this time.
Getting stuck in a halt isn’t fun. Don’t panic if it happens. You can’t control what’ll happen when trading resumes anyway.
Why Does t1 halt Occur?
Another reason for this type of halt is that the company is trying to act upon certain rumors in the stock market. During the halt, you can’t predict whether the stock will move up or down after that.
The rumors of buyout might drive the stock up, and the tales of bankruptcy drive the stocks down. Nevertheless, whatever the type of rumors is, whenever the company feels the need to respond to them, the t1 halt is created in the stock market.
So, you need to understand that the stocks that are altered based on rumors are always at a high risk of getting halted pending news. So, this shouldn’t meet the traders as a surprise whenever this happens.
How Long Is a t1 halt?
The length of the t1 halt depends entirely upon why it was caused in the first place. For instance, if the stock is halted due to the pending company’s news, then this will stay until the company releases the statement.
During this time, the trading stops. But you can keep an eye on the stock sector. However, you’ll not get the information about when the stocks trading will start again.
So, when the material news is released, the halt is broken instantly. The report is either good or bad. Then traders act accordingly afterward.
When this news is released, the trading health T1 is changed to T2, which puts forward an idea that the information has been released, but this doesn’t necessarily mean that the stocks are re-opened.
Later, this T2 is changed to T3. This means that the news has been disseminated. And now the time for the stocks to re-open for trading has been specified.
It’s always time to exhale when trading resumes. Especially if it continues to trade in the direction you want. That’s always the best feeling.
How Should Traders React During a Halt?
It is critical when the halt strikes as both the traders and investors can’t do much about the situation. However, they can only wait for the halt to end because sometimes, the stock can experience an upward spike.
According to a study conducted by Lee, Ready, and Seguin in 1994, they matched trading halts with “pseudo-halts” and found that the price volumes are significantly higher for three days after a trading halt compared to a pseudo halt.
In another study conducted by Christie, Corwin, and Harris in 2002, when the trading resumes after a trading halt, there is more extensive media inside and has much greater volatility in the trading relative to before the halt was caused.
So, the traders and the investors are supposed to wait, assess the situation, and carefully prepare the next move they will take when the halt is lifted. In the middle of the halt, waiting for a few minutes can save you from taking any risks in the stock market.
Even though you don’t know when precisely the halt will be lifted, preparing for your next move and deciding on the options you are going to take afterward can prove to be best for you in the market most of the time.
Though these halts occur occasionally, it is not entirely good. So, how do you know if trading T1 halt is good or bad?
The Good Side of t1 Halt
Following are some benefits of a t1 halt:
- It eradicates all types of illegal practice of arbitrage options.
- A t1 halt keeps the entire stock market participants aware of some vital information about the stock.
- It prevents the stocks from becoming a victim of panic selling or panic buying.
- It keeps the investors from avoiding any substantial monetary losses.
- To keep the other markets updated with news simultaneously.
The Bad Sides of t1 Halt
Following are the disadvantages of a t1 halt:
- When the halt is lifted, the stock prices fall significantly in some scenarios.
- The long halt may decrease the number of interested investors to a certain share and cause losing the trading opportunity.
- The halt introduces a loss for the investors as they cannot buy or profit from the stock when prices are at rock bottom or peak.
Trading halts can cause a real-time struggle for investors and traders. These can be bad or good at times, depending upon the nature of the halt and the reaction of the traders to it. So, trades need to leverage the situation by grabbing this opportunity, analyzing the circumstances, and making a potential move to work exceptionally.