In a broad sense, it refers to controlling the trading risk of stocks, futures or other financial derivatives and setting interval limits on their single-day price fluctuation range. Once the trading price touches the upper and lower limits of the range, the trading will be automatically interrupted for a period of time ("fuse"), or "flat" will not exceed the upper and lower limits ("fuse hold").
In a narrow sense, it 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.
The function of "fuse mechanism" in financial transactions is also to avoid excessive price fluctuation of financial transaction products, give the market a certain cooling-off period, warn investors of risks, and win time and opportunities for relevant parties to take relevant risk control measures.
Extended data
The fuse mechanism originated in the United States, and the Chicago Mercantile Exchange of the United States imposed a 3% price limit on the daily trading price of the S&P 500 index futures contract 1982. However, this provision was abolished in 1983, and it was not until 1987 that people reconsidered the implementation of the price limit system.
1987101October19, the biggest crash broke out in new york stock market. The Dow Jones Industrial Average plunged 508.32 points, or 22.6%, in one day. Because there is no fuse mechanism and price limit, many millionaires become poor overnight, which is also called "Black Monday" by American financial circles.
198810 June19, the United States Commodity Futures Trading Commission and the Securities and Exchange Commission approved the fuse mechanisms of the new york Stock Exchange and the Chicago Mercantile Exchange. According to the relevant regulations of the United States, when the S&P index drops by 7% in a short time, all securities market transactions in the United States will be suspended for 15 minutes.
References:
Baidu encyclopedia-fuse mechanism