What is Circuit Breaker in Stock Market?
Circuit Breaker in Stock Market
When there is a lot of ups and downs in the stock market, then the stock starts falling down or up or down very fast, it is from 2% to 20%, this is called the circuit breaker, the system used to protect the investors. This circuit breaker is applied both on the index and on the stock as and when required. Trading is stopped at that time. The future and option does not under the circuit breaker..Each stock has a price band. Every Stock moves within that price band. If that stock reaches the upper price or lower price of its price band, then trading in that stock is stopped,the stock comes in a circuit breaker. there are two types of circuit breaker.
a.)Upper Circuit
b.)Lower Circuit
What is Upper Circuit?
Let us know how the upper circuit is in stock.Suppose the upper price limit of a stock is 300 rs, then when the stock reaches its upper price 300 rs then trading in that stock will stop.Then the stock will take an upper circuit.There are only buyers in the upper circuit.The upper circuit value varies daily.
What is Lower Circuit?
Let's know how the Lower circuit in the stock market.Suppose the lower price limit of a stock is 210 rs, then when the stock reaches its lower price 210 rs then trading in that stock will stop.Then the stock will take an lower circuit.There are only sellers in the lower circuit.The lower circuit value varies daily.
The circuit break limit of the stock determines the stock exchange, it can range from 2% to 20%.
What is Index Circuit Breaker?
Let's know what is an index circuit breaker? We understand this by example
| NIFTY 50 Closing As on 22-May-2020 | 9,039.25 |
Nifty 50 closed at 9039.25 on 22 May 2020.
a.)If this index falls by 10% means the 903.90 point market will fall, then the first circuit in this market will take place.
b.)If this index falls by 15% means the 1355.90 point market will fall, then the second circuit in this market will take place.
c.)If this index falls by 20% means the 1807.85 point market will fall, then the third circuit in this market will take place.
The circuit breaker limit of the index determines SEBI.
Hope you understand this article, if there is any question related to this article, then you can ask and comment.
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