Fast market

A fast market is one in which there are high levels of trading and high volatility of prices. They usually occur at times of great uncertainty, either for the market as a whole or for a particular security. The term is most often used in a regulatory context.

The distinguishing characteristic of a fast market is the combination of heavy trading and volatility. This is an indication (but most definitely not proof) that the market is not, in some way, functioning correctly.

In a fast market quotes may be inaccurate so at best orders (especially large ones) could be fulfilled at a very different price from that expected. Systems can be unable to cope with the volume of orders, and market information would be inaccurate.

A number of measures may be taken to ameliorate the effects of fast markets:

• Trading may be halted to allow uncertainties to be dispelled. This is most useful when there has been a leak of price sensitive information, or when there are rumours that need to be confirmed or denied. This is often done by automatic “circuit breakers” that halt trading temporarily as soon a a large price swing occurs.
• Market makers may be relieved of the (in the circumstances unrealistic) obligation to trade at their quoted prices. This happens in London.
• Warnings will be issued so that participants (brokers, for example) can prepare their own systems, for example by warning their own customers.
• Automated trading (i.e. systems that allow computers to make buy and sell decisions without human intervention) may be temporarily banned.

All of the above are done by the London Stock Exchange.

Investors may protect themselves to an extent by using limit orders to prevent an order executing at too high or low a price, but the risk is that a limit order may not execute at all, and prices may move even further against you.

Another protective measure, stop loss orders, may also fail in a fast market because the price may fall (or rise in the case of a stop buy) further between the order being triggered and its executing.