What is Circuit Breaker in PSX
Circuit breaker is a mechanism used by the Pakistan Stock Exchange (PSX) to prevent extreme volatility and sudden price movements in the stock market. It is an automatic trading halt that kicks in when there is a significant decline in the market index.
The circuit breaker mechanism is designed to reduce the impact of panic selling and to give investors time to reassess their positions. It is also intended to prevent market crashes and to maintain orderly trading in the stock market.
In the PSX, the circuit breaker is triggered when the KSE-30 Index falls by 4%. When this happens, trading is halted for 45 minutes. If the index falls further by 5%, trading is suspended for the remainder of the day.
The circuit breaker mechanism is an important tool used by stock exchanges around the world to prevent extreme market volatility and to maintain investor confidence in the market.
Here are some frequently asked questions about circuit breakers in PSX:
Q: What triggers a circuit breaker in PSX?
A: Circuit breakers are triggered when the KSE-30 index (a benchmark index of PSX) moves up or down by 4% from the previous day's closing value. If this happens, trading is temporarily halted for 45 minutes.
Q: How long does the trading halt last?
A: The trading halt lasts for 45 minutes. After that, trading resumes with a new price limit of +/- 5% from the previous day's closing value.
Q: How often do circuit breakers get triggered in PSX?
A: Circuit breakers are relatively rare events in PSX. They are only triggered when there is significant market volatility, which usually happens during times of crisis or major news events.
Q: Can investors still place orders during a circuit breaker?
A: No, investors cannot place any new orders during a circuit breaker. However, they can modify or cancel existing orders.
Q: What happens if the KSE-30 index reaches the second price limit after the trading halt?
A: If the KSE-30 index reaches the second price limit (i.e., moves up or down by 5% from the previous day's closing value), trading is halted for the remainder of the day.
Q: What is the purpose of a circuit breaker?
A: The purpose of a circuit breaker is to prevent excessive market volatility and potential market crashes. By temporarily halting trading, it gives investors time to absorb new information and make informed decisions, which can help prevent panic selling and market crashes.
Q: Does every stock in PSX have a circuit breaker?
A: No, only the KSE-30 index has a circuit breaker. However, since the KSE-30 index is a benchmark index that represents the overall market sentiment, a circuit breaker in the KSE-30 index can have a ripple effect on other stocks as well.