๐ Explained Simply with Program Trading & Circuit Breakers!
Hi everyone! ๐
Today, let’s dive into a term you might’ve heard in stock market news, especially on volatile days — Sidecar.
You may have seen headlines like "Sidecar was triggered today" and wondered,
“What does that mean?” ๐ค
No worries! In this post, I’ll walk you through everything you need to know about Sidecars, how they relate to program trading, and how they’re different from circuit breakers. Let's go! ๐
๐ก What Is a Sidecar?
A Sidecar is a temporary brake applied to program trading when the futures market moves too sharply, either up or down.
It’s designed to cool down market volatility and give traders a short pause to make more rational decisions.
Instead of stopping the whole market, it only halts automated program trades for 5 minutes.
⏱ When Does a Sidecar Trigger?
Here’s a simple breakdown ๐
| Type | Condition | Action Taken |
|---|---|---|
| ๐ Sell Sidecar | Index futures drop 5% or more for over 1 minute | Sell-side program orders paused for 5 minutes |
| ๐ Buy Sidecar | Index futures rise 5% or more for over 1 minute | Buy-side program orders paused for 5 minutes |
๐ธ Only 1 Sidecar can be triggered per day
๐ธ It cannot be triggered in the final 40 minutes of the trading session
๐ค What Is Program Trading?
To understand Sidecars better, we need to know what program trading is.
Program trading is a form of automated, large-volume trading executed based on predefined algorithms or conditions.
It’s mostly used by institutional investors, who set up conditions like:
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"If the KOSPI 200 futures rise 2%, sell X stock"
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"If they drop 1%, buy Y stock"
When those conditions are met, the trades happen automatically and instantly ๐ค๐ผ
๐ฆ Two Types of Program Trading
| Type | Description |
|---|---|
| ๐ Arbitrage (Index Arbitrage) | Takes advantage of price differences between futures and spot markets |
| ๐ Non-Arbitrage | For portfolio rebalancing or general positioning; not aimed at profits directly |
Because these trades happen in huge volumes and very fast, they can seriously influence the market — especially during volatile times.
That's where Sidecars come in!
๐ Why Do We Need Sidecars?
When the futures market moves sharply, program trades are triggered en masse.
This can ripple into the spot market and cause panic or irrational price swings.
๐ To prevent this, the Sidecar puts a 5-minute pause on program orders.
This helps stabilize the market, cool things down, and give traders time to breathe.
Think of it as a “speed bump” in a fast-moving market ๐
๐ Sidecar vs. Circuit Breaker – What's the Difference?
These two are often confused, so here’s a simple comparison:
| Feature | Sidecar | Circuit Breaker |
|---|---|---|
| What It Affects | Only program trading | Entire stock market |
| Pause Duration | 5 minutes | 10–20 minutes |
| Trigger Condition | Futures index changes ±5% | Overall market index falls ±8%, ±15%, or ±20% |
| Frequency | Once per day | Up to 3 levels per day |
| Strength | Mild intervention | Strong action to halt panic selling |
So in short:
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✅ Sidecar = Pause only program trades
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๐ซ Circuit Breaker = Pause all stock trading
๐ Real-Life Sidecar Examples
๐ March 2020 – COVID-19 Market Crash
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KOSPI 200 futures dropped more than 5%
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Sidecar was triggered
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Volatility continued → Circuit breaker also triggered the same day ๐ฑ
๐ 2011 – European Debt Crisis
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Futures fell sharply on global financial fears
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Sidecar was triggered to slow down program selling
Sidecars are usually triggered in crash situations, but they can also occur during sudden surges!
✍️ Key Takeaways
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✅ Sidecar = A tool that temporarily stops program trading for 5 minutes during high volatility
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๐ป Program trading = Automatic trading based on preset conditions, used by institutions
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๐งฏ Sidecars help stabilize markets and prevent chaos from rapid algorithmic orders
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๐ Different from circuit breakers, which halt the entire market
๐ Hope this made Sidecars super clear and easy to understand!
They may sound technical at first, but they’re important safety tools in today’s fast-paced stock markets.
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