3. Volatility Halts Explained — Why Surging Stocks Suddenly Stop Trading
If you watch a fast-moving stock long enough, you've probably seen it happen: trading suddenly freezes and a notice flashes up announcing a "volatility interruption." Anyone who follows surging stocks regularly has run into this scene. This post covers exactly what a volatility halt (often called VI, for Volatility Interruption) is, why it exists, and how I ended up using it while designing an algorithmic trading system. Why Volatility Halts Exist A volatility halt is a mechanism that temporarily pauses trading and switches to a single-price auction whenever a stock's price moves sharply within a short window of time. Exchanges that run this system typically split it into two types. A "static" halt triggers when the price moves a certain percentage (often around 10%) from the last reference price of the day. A "dynamic" halt triggers when the price moves a smaller percentage (often 2–3%) instantaneously, relative to the last executed trade. Once...