Are there any circuit breakers in the MCX market?
Yes, there are circuit breakers in the MCX (Multi Commodity Exchange) market. Circuit breakers are mechanisms put in place by stock exchanges to temporarily halt trading during periods of extreme volatility or significant price movements. These circuit breakers serve as safeguards to maintain orderly trading and protect investors from excessive market fluctuations.
In the MCX market, circuit breakers are triggered at two levels: market-wide and individual stock-based circuit breakers. The market-wide circuit breaker applies to all instruments traded on the exchange, while the individual stock-based circuit breaker applies to specific stocks or commodities.
Market-Wide Circuit Breakers
The market-wide circuit breaker mechanism is triggered based on the movement of the index, which is calculated using the exchange’s prescribed formula. When the index breaches a pre-determined percentage threshold, trading is halted for a specific duration. This pause in trading allows market participants to reassess their positions and prevents panic selling or buying.
Individual Stock-Based Circuit Breakers
Apart from the market-wide circuit breakers, individual stock-based circuit breakers are implemented to control the volatility of specific stocks or commodities. If a particular stock or commodity experiences a substantial price movement within a specified time frame, trading for that specific instrument is halted for a certain period. This mechanism helps prevent sudden and drastic price fluctuations in individual securities.
Circuit breakers play a crucial role in maintaining market stability and protecting investors’ interests. By temporarily halting trading during periods of extreme volatility, they provide breathing space for market participants to reassess their strategies and prevent potential financial losses.