circuit breakers

High rise and fall of the market is not a healthy sign for any market.Thats exactly the reason why circuit breakers are created. The trading is temporarily closed when the market rises or falls by certain percentage. There are two types of circuit breakers :

• Circuit breakers for entire market
• Circuit breakers for individual stocks

When the over all market rises by 10%,15% or 20% the trading is stopped for certain time. First break occurs at 10% followed by 15 and then 20%. If the market rises above 20% then the trading is stopped for the entire day. There are many incidents when market crashed by hitting lows but there is only one single incident when the trading was stopped as the market hit upper circuit by rising above 15%.It has occured on 18th may 2009 and this day is known as the golden monday in the history of the indian stock markets. The circuit breakers are created to control the volatility in the stocks.

However, for individual stocks circuit breaker comes into picture when the stock rises or falls by 2, 5, 10, or 20%. Circuit breaker is not applicable to IPOs and the stocks in the BSE 30 index and S&p CNX nifty index.