Sidecar and circuit breaker in the stock market are mechanisms to protect investors from sudden price changes.
Sidecar temporarily halts program trading when the stock index fluctuates, preventing excessive volatility, while circuit breaker suspends all trading in case of sharp price increases or decreases to prevent panic selling.
Both systems are employed to stabilize the market and protect investors, and they are used appropriately depending on the market conditions.
Understanding Sidecar and Circuit Breaker in the Stock Market
The stock market has mechanisms in place to protect investors from significant losses due to unexpected and large volatility. Among them, 'Sidecar' and 'Circuit Breaker' play crucial roles in the stock market. Let's briefly compare these two systems.
Sidecar A sidecar is a measure that temporarily halts program trading when a stock index fluctuates sharply in a short period. It is used to prevent excessive price fluctuations and maintain market stability.
Circuit Breaker A circuit breaker is a measure that temporarily suspends all stock trading when stock prices surge or plummet. It is used to prevent panic selling due to a sharp market decline and to provide investors with time to breathe.