Circuit breakers in stock market are predefined values or numbers in percentage, when the value of index or the stock hit that predefined level automatic check applied on that particular index or stock and trading halted for few minutes.
The change in value of stock or index are calculated on the basis of previous closing value
Some popular types of circuit breakers are:
1-Halting trading for certain time- In this circuit breaker trading of particular stock or index checked for few mutes to few hours.
2-Halting trading for whole day-In this circuit breaker trading of particular stock or index halted for the whole day.
Circuit breaker is beneficial in case of panic buying or selling, panic buying or selling is the situation in which lot of investors started buying or selling particular stocks or index over certain period of time.
Why circuit breaker required:
Circuit breaker also check the sudden surge or dip in the stock’s prices due to a lot of automated software being used to buy or sell particular stock or index.
Cons of the Circuit Breakers:
Investors are unable to trade on particular index or stock update choice apart from this it can spread the volatility in the market over long period of time and prevent immediate correction
Corona Virus effect on Indian stock market:
Due to global pandemic corona (COVID-19) virus the Indian stock market and economy is going through very bad phase, people are selling their stocks due to uncertainty in the market and stock prices due to which prices are falling, recently circuit breaker applied many times in the stock exchange to prevent the downfall in the stock prices, trading halted may times.