What is Curb Trading

by Investing School on September 14, 2011

Not all of the action goes on during the limited hours in which the local stock market is open. Curb, or kerb, trading takes place after the official exchanges have rung their final bell. The trades are usually conducted through computers or telephones.

The name comes from a time in the past when stocks declined by the New York Stock Exchange had to be bought and sold out on the street in front of the building – on the curb. These practices eventually lead to the American Stock Exchange’s establishment. Today stocks aren’t usually traded on the street, but any such transactions conducted away from general market regulation are considered curb trades.

In the United States markets this kind of trading is illegal. The Commodities Exchange Act of 1936 banned all curb trading and continues to enforce the ban today. This is particularly important to maintain on the futures markets since buyers are involved in a calculated gamble to begin with. In the futures market the investor purchases a particular product to be delivered on a specific date at a specific time.

Unfortunately, even with a ban on curb trading in place the practice continues. The wise investor will scrupulously avoid any transaction offered without the benefit of working through the official exchanges. Any broker who implies otherwise should be discounted.

Curb trading is different than trading curbs, which are limits placed upon markets to avoid panicked sell offs. Designed to reduce volatility they shut down markets on a specified schedule if large declines are noted, giving investors time to consider their moves more carefully.

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