What Are ‘Price Collars’ and How Do They Prevent Market Abuse?

Price collars are a type of pre-trade risk control used by exchanges to prevent market abuse and extreme volatility. A price collar sets a dynamic limit on how far an order's execution price can deviate from the current market price or a reference price.

If an incoming order would execute outside this defined collar, it is either rejected or converted into a limit order. This prevents manipulative practices like "fat finger" errors, market crashes, and rapid price manipulation (like a flash crash caused by a front-running liquidation cascade) from destabilizing the market.