When the fluctuation range of the stock index reaches a specified point, the exchange closes the transaction to avoid risks.
Extended data:
1, related introduction of fuse mechanism:
The fuse mechanism, also known as automatic stop mechanism, is a risk control measure adopted in financial market transactions. Its main function is when the price of stocks or other financial derivatives fluctuates sharply.
By suspending trading for a period of time, the market will be rebalanced, investors will have time to think calmly, and market sentiment will be prevented from getting out of control, further aggravating price fluctuations. The fuse mechanism aims to protect the interests of investors, maintain market stability and reduce financial risks.
Fuse mechanism is usually divided into two forms: unilateral fuse and bilateral fuse. Unilateral fuse means that when the price of a stock fluctuates greatly, the exchange will suspend the trading of the stock until the price returns to the normal range. Bilateral fuse means that when the stock price rises or falls to a certain extent, the exchange will suspend trading until the market price returns to a reasonable range.
The fuse mechanism has two concepts: broad sense and narrow sense. The generalized fuse mechanism is to control the trading risk of stocks, futures or other financial derivatives, and set interval limits on their one-day price fluctuation range.
Once the transaction price touches the upper and lower limits of the range, the transaction will be automatically interrupted for a period of time (that is, blown), or the price will remain within the upper or lower limit (continuously blown). The fuse mechanism in a narrow sense refers to the fuse of stock index futures. It is called fuse because the principle of this mechanism is similar to that of circuit fuse. Once the current is abnormal, the fuse will automatically blow to avoid electrical damage.
2, fuse mechanism:
The fuse mechanism has a certain early warning function in actual operation, which can provide investors with a certain time window to make corresponding countermeasures before the market price fluctuation intensifies. In addition, the fuse mechanism can also eliminate the decline of market liquidity, avoid panic selling and vicious competition, thus reducing the systemic risk of financial markets.
However, the fuse mechanism also has some limitations and shortcomings. First of all, the fuse mechanism is started, and the exchange suspends trading, so investors may not be able to stop loss or adjust their investment strategies in time.
Secondly, the fuse mechanism may lead to the increase of market price fluctuation, thus affecting the stability of the market. In addition, the fuse mechanism may be abused by investors to realize their own interests by manipulating the price to trigger the fuse mechanism.
To sum up, the fuse mechanism is a risk control measure adopted in financial market transactions, aiming at protecting the interests of investors, maintaining market stability and reducing financial risks. Although the fuse mechanism has certain advantages, it also has certain limitations and shortcomings.
Therefore, in practical application, it is necessary to flexibly adjust the trigger conditions and execution methods of the fuse mechanism according to market conditions and investors' needs, so as to achieve the best risk control effect.