What it means
Spikes are defined by two features: speed and size. Something moves far outside its usual range in a short space of time, such as a share price leaping 15% in minutes or a daily trading volume suddenly running at five times the average.
In markets, spikes are often triggered by surprise news, a large single order, a data release or a technical glitch. Because there is not enough buying or selling interest on the other side, the price overshoots and then drifts back towards where it was.
Outside the trading screen, finance teams see spikes in the business itself. An electricity bill can spike in a heatwave, a supplier's cost can spike after a shortage, and interest on a floating-rate loan can spike when benchmark rates jump.
Spotting these early is part of good management reporting. The practical question is always whether a spike is a one-off or the start of a new level.
Analysts often compare the spike to a moving average, which is the average of recent periods, to see if the figure is an outlier or a genuine change. If the new, higher level lasts for several periods, it is better described as a shift or a trend rather than a spike.
Spikes also affect decisions and accounting. A forecast that treats a one-off spike as normal will overstate costs or revenue, while a risk model that ignores spikes will understate how bad a bad day can be.
Many firms strip out spikes, or show them separately, when they want to explain underlying performance. Risk managers also care about how often spikes occur and how long they take to fade.
A business whose costs spike every winter should plan for that pattern in its budget and cash forecast, while a spike that appears without warning may call for an explanation and a check that the data is correct. Data errors, such as a misplaced decimal point, are a surprisingly common cause of apparent spikes.
In practice
Real-world examples.
Example
A listed software company announces a surprise partnership, and its share price spikes 12% in the first hour before settling back to a 4% gain by close. A trader who bought at the peak sees an immediate paper loss.
Example
A food distributor sees its freight costs spike during a port strike, running at 60% above the usual rate for two weeks. The finance team flags the cost as non-recurring in the monthly report so the board does not mistake it for a permanent increase.
Example
A small online shop sees website orders spike on a single weekend after an influencer mentions its product. The operations manager has to fund extra stock and delivery capacity quickly, which puts pressure on cash for the following month.
Formula
Calculation
Spike size (%) = (peak value - normal value) / normal value x 100
A retailer normally spends about $40,000 a month on electricity. During an unusually hot month the bill reaches $58,000. The spike is 58,000 - 40,000 = $18,000 above normal, and 18,000 / 40,000 = 0.45, so the spike is 45%. If the following month's bill falls back to $41,000, the team can reasonably call it a spike rather than a new baseline.Case study
Seen in the real world.
Brightwater Foods is an illustrative, fictional wholesaler that buys cooking oil for its customers on a monthly basis. Normally the oil costs about $2,000 per tonne, but after a crop failure the spot price spiked to $2,900 in one week.
The purchasing manager wanted to buy at once to secure supply, but the finance director asked for the price history first. The chart showed a narrow peak, and similar spikes in the past had faded within three weeks, so the team bought only the minimum needed and waited.
Prices fell back to $2,150 a tonne over the next month. The illustrative lesson is that checking whether a move is a spike or a new level can save real money, although the team also accepted the risk that prices might have kept rising. The team also logged the episode in a short note, so that next time the purchasing manager could see what was decided and why.
Watch out
Common mistakes.
- Treating a single spike as the new normal and rewriting the budget around it.
- Ignoring a spike entirely when it is in fact the first sign of a lasting change, such as a supplier permanently raising prices.
- Reacting to a spike with a trade or purchase at the very peak, which locks in the worst price of the period.
Questions
People also ask.
How long does a spike last?
There is no fixed length, but spikes are usually short, from seconds in trading to a few weeks in costs, and a move that lasts longer is better called a trend.
Is a spike always bad news?
No, a spike can be upward or downward and can be good or bad for the business, for example a revenue spike is welcome while a cost spike is not.
How do analysts spot a spike?
They compare the latest figure with its average and normal range, and a reading several standard deviations (a measure of typical variation) away from the average is usually treated as a spike.
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