What is a Run?

Welcome to the Investors Trading Academy talking glossary of financial terms and events.
Our word of the day is “Run”.

A run occurs when a flood of depositors withdraw their funds from a bank within a short time frame. In the investment market a run to the upside is typically the result of a large amount of money entering the market and bidding up the prices. A run to the downside, on the other hand, may be the result of such factors as investors taking profits. Fundamental factors, technical factors and market sentiment all have an effect on securities' prices and can help push prices in the same direction for a period of time, creating a run. If a stock has been experiencing a period of rising prices, it might be reported that, "Stock XYZ continued its run today with another large gain."
For example, let’s say that John Doe reads a rumor on the Internet that Bank XYZ is getting ready to go bankrupt. Worried about the money in his checking and savings account there, John runs over to the bank and withdraws all of his money. He also tells his sister, his nephews and his parents, who also withdraw their money. Rumors of Bank XYZ’s demise spread over the Internet like wildfire. Soon, more people withdraw their funds or transfer them to other banks.
The rumor is not true and Company or Bank XYZ is in fine financial health. But by this point, Bank XYZ has given out so much cash from its vault that now it really is having a hard time fulfilling the withdrawal requests from its customers. Now the news goes national, and every depositor of Company XYZ hears that you’d better get your money out now before there’s none left. The downward cycle continues.
Eventually, the withdrawals reach a point where Company XYZ is drained of cash, actually does become financially unstable, and goes under. The run becomes a self-fulfilling prophecy.

By Barry Norman, Investors Trading Academy