Definition
Price Band
A price band is the maximum permissible price movement, expressed as a percentage above and below a reference price, within which a security may trade during a session before being frozen.
Indian exchanges apply daily price bands (commonly 2%, 5%, 10% or 20%) to individual stocks based on their characteristics, capping how far the price can move in a day. Stocks in the derivatives segment have no fixed daily band but are subject to operating ranges and dynamic price bands.
Price bands prevent runaway moves and erroneous trades from causing extreme single-day swings. They differ from the market-wide circuit breaker, which halts the entire market. When a stock hits its band, fresh orders beyond the band are rejected until the band is revised or the session ends.
Related terms
- Pre-Open SessionThe pre-open session is a short window before regular trading begins, during which orders are collected and a single opening price is established through a call auction to absorb overnight information.
- Dynamic Price BandA dynamic price band is a flexible price collar, used mainly in the derivatives and high-band cash segments, that can be relaxed in steps during the day when genuine demand pushes prices to the limit.
- Market-Wide Circuit BreakerA market-wide circuit breaker halts trading across all equity and derivatives segments when a benchmark index moves beyond preset thresholds, giving the market time to absorb information and cool down.
- Index Circuit BreakerAn index circuit breaker is the threshold-based trading halt applied when a benchmark index such as the Nifty 50 or Sensex moves by a specified percentage, pausing trading market-wide.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.