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What is market disruption?

What is market disruption?

Market disruption is a term that describes the state of affairs when the status quo of the stock market or a particular industry’s market is destabilized.

This could include the entry of what’s called a disruptive technology or new competitive company, or a natural disaster, or technical difficulties with the computer network that the exchanges use. It is also commonly used to refer to a panic or mania that makes the market disorderly and is stemmed through the use of circuit breakers.

A market or industry can be disrupted by the advent of a new technology or company. These will cause a shift in the way business is done, and some more nimble companies may come out ahead of the tried-and-true ones. The term market disruption also describes rapidly falling prices that cause investors to panic and sell-off, as well as the overly-rapid appreciation of a stock.

To counteract the pressure on investors to hyper-actively trade in such conditions, exchanges have installed circuit-breaker policies, which means that if there are swings in the market that are a little too rapid and too big, trading can be temporarily halted for a single stock or the entire market. This encourages investors to let cooler heads prevail.

This actually backfired in August 2015, however, due to the fact that ETFs, which are becoming a larger presence in the market all the time, were unable to keep up with their indexes when trading stopped. Methods to sidestep this problem are being researched.

What is Market Arbitrage?
What is Market Efficiency?

Keywords: market indices, Exchange Traded Funds (ETFs), technology, speculation, circuit breakers, market research, market psychology,