Knowlopedia
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The stock market can be a tricky game to play, and it’s important to know all the rules before you start trading. One such rule that you should be aware of is the circuit breaker rule, which was put in place by the Securities and Exchange Commission (SEC). This rule helps protect investors from extreme volatility or sudden drops in stock prices.
The circuit breaker rule works by automatically suspending trading on stocks when their price falls or rises beyond predetermined levels within a certain period of time. For example, if a particular stock experiences an unusually large drop within 15 minutes—say 10% or more—then trading will be suspended for at least 10 minutes while an investigation is conducted into why this happened. The same applies for unusually large increases: if within 5 minutes a stock goes up more than 5%, then it will also trigger a suspension of at least 10 minutes while further analysis takes place.
This helps prevent panic selling, since traders won’t have access to buy or sell during these suspensions and may take some time to assess what’s going on before they act on any impulse decisions they might have had otherwise. It also prevents fraudsters from taking advantage of unsuspecting investors with artificially inflated prices due to illiquidity caused by low volume trades.
Moreover, this often gives other traders an opportunity to review news related events that could influence the price movements in order better inform their decision making processes regarding whether they should enter into positions with those particular securities once trading resumes again after the suspension period has ended..
The circuit breaker rule works by automatically suspending trading on stocks when their price falls or rises beyond predetermined levels within a certain period of time. For example, if a particular stock experiences an unusually large drop within 15 minutes—say 10% or more—then trading will be suspended for at least 10 minutes while an investigation is conducted into why this happened. The same applies for unusually large increases: if within 5 minutes a stock goes up more than 5%, then it will also trigger a suspension of at least 10 minutes while further analysis takes place.
This helps prevent panic selling, since traders won’t have access to buy or sell during these suspensions and may take some time to assess what’s going on before they act on any impulse decisions they might have had otherwise. It also prevents fraudsters from taking advantage of unsuspecting investors with artificially inflated prices due to illiquidity caused by low volume trades.
Moreover, this often gives other traders an opportunity to review news related events that could influence the price movements in order better inform their decision making processes regarding whether they should enter into positions with those particular securities once trading resumes again after the suspension period has ended..
