Circuit breakers in stock trading are automatic tools that temporarily stop trading when prices move too quickly in a short time. They help control panic selling or buying and give investors time to think. These breakers are used in both stock exchanges and individual stocks to prevent sudden crashes or spikes and maintain market stability.

What Are Circuit Breakers in Stock Trading?

Circuit breakers are safety measures used by stock exchanges to stop trading for a short period when there is a sharp movement in stock prices. These are set at certain percentage levels, like 5%, 10%, or 20%. If the market or a stock moves beyond these limits in a short time, trading is paused to reduce panic and give time for investors to react calmly.

Why Are Circuit Breakers Important?

Circuit breakers are important because they protect the stock market from sudden crashes or extreme price movements. They give investors time to understand what is happening and make smart decisions instead of reacting emotionally. This helps keep the market stable and fair for everyone, especially during uncertain or high-volatility times.

How Do Circuit Breakers Work in India?

In India, circuit breakers are applied at three levels: 10%, 15%, and 20% based on the movement in major stock indices like Nifty or Sensex. If the index falls or rises beyond these levels, trading is paused for a fixed time. The exact pause time depends on when the movement happens during the trading day. The same logic applies to individual stocks as well, based on their risk category.

What Happens During a Circuit Breaker Halt?

When a circuit breaker is triggered, trading is stopped for a few minutes or hours, depending on how much the market has moved. During this time, no buying or selling can happen. It gives everyone a break to assess the situation, read news, and decide their next move. After the break, trading resumes normally, often with better stability.

Do Circuit Breakers Affect All Traders?

Yes, circuit breakers apply to all traders and investors equally. Whether you are a beginner or a professional trader, trading halts affect everyone. It is a fair system that gives all participants time to cool down and avoid making hasty decisions. These breaks are especially useful during news shocks, global crises, or sudden big announcements.

Are Circuit Breakers Good for Long-Term Investors?

Yes, circuit breakers are helpful for long-term investors because they reduce extreme short-term volatility. This protects portfolios from sudden crashes and gives investors time to think instead of reacting in panic. It helps maintain a more stable and fair market, which benefits everyone in the long run.