In this video, we explain Circuit Breakers in the stock market, what they are, how they work, their advantages and disadvantages.
What are Circuit Breakers?
Circuit breakers are a type of automatic regulatory instrument or mechanism in the stock market that temporarily puts a stop to the trading exchange to curb panic selling or prevent a free-fall in the stock market.
When are Circuit breakers triggered?
Circuit breakers are usually triggered in case of unprecedented scenarios when there are chances of too much loss or gain in the market.
Usually, these are triggered to prevent include two scenarios:
– Panic selling
– Maniac buying.
How does the whole process of circuit breakers work?
After 2013 the circuit breakers respond to S&P 500 index parameters that include three levels:
– Level 1 circuit breakers- these kick in when the stock index falls by 7% from the previous closing.
– Level 2 circuit breakers- When the stock index falls by 13% from the previous closing.
– Level 3 circuit breakers- When the stock index falls by 20% from the previous closing.
Further, we move on to explain the advantages and disadvantages of circuit breakers and look at one of their classic examples in a recent real-world scenario.
So, make sure you stay till the end of the video.
For more details on this topic refer to our article at: https://www.wallstreetmojo.com/circuit-breaker-in-stock-market/
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