What is a circuit breaker?
When a home’s wiring is overloaded, the circuit breaker “trips” and cuts the power so nothing catches fire. A stock market circuit breaker works in a similar way: a share’s price is not allowed to rise or fall more than a set percentage from the previous day’s price in one day. The top limit is called the upper circuit and the bottom one the lower circuit.
Hitting the limit does not stop trading altogether; it just means no trade can happen at a price beyond it. Say a price is stuck at the lower circuit. Sellers are queuing, but there are few buyers at that price. Many people then cannot sell at all, and the next day starts again with a new limit.
Say a share closed yesterday at Tk 100 and the limit is 10%. Today its price cannot go below Tk 90 or above Tk 110. In the morning, news spreads that the company’s factory has caught fire. Everyone wants to sell, and the price drops fast to Tk 90 and sticks there. Even someone willing to sell at Tk 80 cannot do so today. Amid the panic, everyone gets at least one night to check the news. The story and numbers are made up.
Why it matters to an investor
- Selling at the lower circuit is hard: when the price is stuck at the limit, sellers queue and buyers are scarce. You may not be able to get your money out on the day you need it.
- The upper circuit can be a warning too: several days in a row at the upper circuit means strong demand, but whether that reflects good news or a rumour is a separate question.
- Limits add up day by day: a daily limit may look small, but over several days the price can travel a long way.
- The rules change: in a crisis the regulator or the exchange may change the limits, so you need to know the rule in force before you buy.
Bangladesh’s price-tiered limits
In Bangladesh the circuit breaker depends on the share price: the higher the price, the smaller the percentage limit. The standard structure set by a BSEC order in June 2021 is shown below. At the time, newly listed shares were also put under the same rules from their first trading day.
In July 2026 BSEC withdrew its 2021 directive and gave DSE and CSE the power to set market-control parameters, circuit breakers included. So the limits may change, or differ between the two exchanges. Check the current limits on the exchanges’ websites.
- Shares priced up to Tk 200: 10% a day
- Tk 200–500: 8.75%
- Tk 501–1,000: 7.5%
- Tk 1,001–2,000: 6.25%
- Tk 2,001–5,000: 5%
- Above Tk 5,000: 3.75%
What happened when limits were changed in a crisis
When prices kept falling, the regulator has several times narrowed the lower limit, or gone further and imposed a floor price (a wall below which prices cannot go). For example, on 24 April 2024 BSEC cut the lower limit from 10% to 3% to curb panic selling.
The very next day, as soon as the market opened, most falling shares dropped straight to the 3% limit; investors said it had become hard both to sell and to buy. In August 2024 the lower limit was put back to 10%. The lesson: a limit can slow a fall, but if sellers outnumber buyers, the fall is simply spread over more days, with trading jammed in between.
In other markets
Many countries also have circuit breakers for the whole market. In the US, for example, if the S&P 500 index falls 7% or 13% from the previous day’s close (before 3:25pm), trading across the market pauses for 15 minutes, and a 20% fall halts trading for the rest of the day. Individual shares there have rules for short pauses rather than a fixed limit for the whole day.
Worked example
- Assume the June 2021 structure applies. A Tk 100 share has a 10% limit: today its price stays between Tk 90 and Tk 110.
- A Tk 300 share has an 8.75% limit, which is Tk 26.25: today its price stays between Tk 273.75 and Tk 326.25.
- If the Tk 100 share hits the upper circuit three days running: Tk 110, then Tk 121, then Tk 133.10. Each day’s limit is worked out from the previous day’s price.
Result: even with a 10% daily limit, the price can rise about 33% in three days, or fall about 27% (from Tk 100 to Tk 72.90). A circuit breaker slows the journey; it does not change the destination. The numbers are only an example.
Common mistakes
- Thinking “there’s a circuit breaker, so I can’t lose much”. The limit resets every day, and a big fall over several days is possible.
- Assuming you can always sell at the lower-circuit price. If there are no buyers at that price, you cannot sell at all.
- Chasing a share just because it hit the upper circuit, assuming “something good must be happening”. Buying without checking why is a big risk.
- Going by rules remembered from years ago. Limits change from time to time, and now the exchanges can change them too.
A circuit breaker slows prices down; it does not remove risk. When a price is stuck at the limit, buying and selling can both be hard, and over several days prices can travel a long way.