CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
☰
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
✖

Limit Down and Rough Open Expected For Wall Street

Article By: ,  Senior Market Analyst
March 9, 2020 7:56 AM
The toxic combination of an oil price collapse along with escalating coronavirus fears is setting the scene for one of the wildest days in years for global markets and US indices.

Panic selling is engulfing the markets as traders attempt to figure out how the oil price war and the rapid spread of coronavirus and the associated supply demand shock will impact the global economy.

Indices in Europe have plunged sharply in the European session. The FTSE experienced losses of 8.5% at its worst and US index futures have plunged 5%, indicating a sharp fall on the open. The panic exists because traders cannot quantify either the oil price war or the coronavirus impact. Markets hate uncertainty and recession fears are growing, fanned further by dismal data from China

Over in the US, futures trading was suspended in the Asian session on limit down after the S&P fell 5% making for a very uncertain US open.

What is limit down or circuit breaker?
A limit down price is the maximum sell-off permitted under NYSE rules in a market on a single day of trading. Once this level has been reached, the market is then suspended to prevent significant volatility and potential panic selling. A limit down price is typically determined as a percentage decline in a given market, rather than a nominal decline in price.

Circuit breakers levels
There are three circuit breaker levels, when declines in the S&P breach 7% and 13%, trading will pause for 15 minutes. A 20% decline would shut trading for the rest of the day under current NYSE trading rules. 

Not the first time
This is not the first time that the markets have experienced limit down. US equity futures trading were limit down after President Trump’s surprise 2016 election. Whilst there was significant volatility on days following the results, this actually calmed relatively quickly and saw the US stock markets rally across the following 4 year to reach an all-time high in February.
On the other hand, limit down was also experienced in the 2008 financial crash. The markets plunged as traders feared the banking crisis would lead to a global recession, which it did.

Recession coming?
The one two punch of an oil price war, coronavirus outbreak escalation, combined with dismal data from China has investors fearing a global recession. It is impossible to tell right now how this will pan out. Limit down does not in itself mean that a recession will pursue. However, the bond market is pointing to some dark days ahead. 

Circuit breaker level chart S&P


StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024