Shock Absorber

We live in a society that appreciates suspension...on bikes, motorcycles, cars, the economy, a Fifty Shades scene...you name it.

A shock absorber in the economic sense typically refers to some type of temporary “freeze” on something specific. Usually, you’ll hear shock absorbers in the context of freezing certain index futures, which are based off of underlying indices that may be going haywire.

Shock absorbers temporarily restrict trading certain derivatives to dampen some external effects. It tells everyone to calm the F down, and that even if they don’t, well...they don’t have a choice. No trading for you!

When the tide of whatever-craziness has passed, the shock absorber will be released. Derivative action might still have its ups and downs right after they’re allowed to resume in the market, but overall, they’re oftentimes successful in maintaining value.