Portfolio insurance was the crash-era strategy that automatically sold futures or stocks as prices fell.
The technique was designed to limit losses by reducing market exposure during declines. In practice, many portfolios used similar rules at the same time. Falling prices could therefore trigger additional selling, which placed further downward pressure on markets.
Researchers and regulators identified this feedback effect as one contributor to Black Monday on October 19, 1987. It was not the only cause: concerns about valuations, interest rates, and international trade also shaped investor sentiment.
Portfolio insurance is not the same as ordinary margin trading. Margin trading uses borrowed money, while portfolio insurance refers to a hedging strategy intended to manage downside risk. The episode helped motivate later market safeguards, including circuit breakers.