Gates

Definition

Gates are mechanisms used in financial markets to control the flow of trades and capital, often implemented to manage risk and volatility. They can include restrictions on trading volumes or specific measures to prevent market crashes.

5 Must Know Facts For Your Next Test

1. Gates are often used during periods of high market volatility to stabilize prices.
2. Common types of gates include circuit breakers and trade halts.
3. Gates can be triggered by predetermined thresholds such as a significant drop in stock prices.
4. They play a crucial role in preventing panic selling during market downturns.
5. Gates were notably employed during the 1987 Black Monday crash and more recently during the COVID-19 pandemic.

Review Questions

• What is the primary purpose of gates in financial markets?
• Name two common types of gates used in stock markets.
• During which major market events were gates notably employed?

Related terms

Circuit Breaker: A regulatory measure that temporarily halts trading on an exchange to curb panic-selling.

Trade Halt: A temporary suspension of trading for a particular security or securities.

Market Volatility:

The rate at which the price of securities increases or decreases for a given set of returns.