Circuit Breaker
Circuit breakers in the Share Market are the measures to prevent the selling of disturbances during high volatility. They also help in stopping major changes in prices in individual securities. Read here to buy a company's share on our site.
The circuit breaker in the stock market has a predetermined value in percentages, which automatically trigger if there is any change in any direction in any stock or index. If the price increases or falls, the circuit breaker on the stock or index will be determined by its previous closing rate. Usually, circuit breakers are set for both shares and index. Several steps may be taken after the violation of the circuit breaker.
- Options on the circuit breaker: In case of a circuit breaker, the stock exchange can stop the trade in that stock or index for a certain period. Or, for the entire business day, that can prohibit trading in that stock or index. In the case of the first option, the stock market can be stopped for a few minutes or a few hours to allow trading activity among the participants to cool down. During this time period, the market offers an opportunity to understand and assimilate any news about that stock suddenly. After this, the rational approach to that stock can be adopted during the remaining business session. If the stock prices remain unstable even after a short interval and the situation is going out of control again, then the exchange can take the second option and ban the trading of shares for the rest of the day trading hours.
- Regular Review: Percentage levels applied to these circuit breakers are regularly revised. These changes are made at different times depending on the stock's level or index. For example, a stock may have a circuit breaker at 20 percent for a certain period, and later if the stock exchange is found then it can be modified below 10%.
- Loss of circuit breaker: The biggest disadvantage of the circuit breaker is that it prevents the stock from reaching its real value on both sides of the right up or down for a limited period. Other people who keep in-house news can benefit from the price of shares on time until they reach the retail investor, they can not take advantage of it due to the circuit breaker.
