🚦Circuit Breaker

Price Range Limit Mechanism for Market Stability

The Circuit Breaker is a protective mechanism used in the bond market to prevent excessive price movements and maintain stability. This user guide will explain what the Circuit Breaker is and why it is important for bond market participants.

What is the Circuit Breaker in Bond Market?

The Circuit Breaker in Bond Market is an automatic mechanism that temporarily suspends trading if there is a sudden and significant price movement. The Circuit Breaker is triggered when the price of bonds rises or falls beyond a certain pre-determined limit. The purpose of the Circuit Breaker is to prevent market participants from trading under extreme market conditions and to protect investors from significant losses due to sudden price fluctuations.

Why is the Circuit Breaker Important?

The Circuit Breaker is important for several reasons. First, it helps prevent panic selling or buying during periods of extreme volatility, which can cause prices to move rapidly and unpredictably. This can lead to significant losses for investors who are not able to react quickly enough. Second, it provides market participants with time to assess the situation and make informed decisions about their trades. This helps to prevent knee-jerk reactions that can lead to further market disruption. Finally, the Circuit Breaker promotes overall market stability by reducing the likelihood of extreme price movements and volatility.

Any specific benefit from Circuit Breaker for crypto trading?

By setting the value threshold of the Circuit Breaker to dynamically change based on interest rates or loan duration, you can effectively mitigate the impact of a Flash loan attack. Restricting the price movement within a single block ensures that any potential damage is contained and doesn't escalate rapidly.

How does it work for Secured Finance platform?

At our trading platform, we have implemented a circuit breaker mechanism that effectively sets price limitations for market movements within a single block. This mechanism applies to both our 'market order' and 'limit order' functions, ensuring that all orders adhere to a well-defined 3-threshold system. By doing so, we guarantee that orders remain within acceptable price ranges, effectively preventing extreme volatility and maintaining stability in our Zero Coupon bond market. The circuit breaker serves as a crucial tool to promote a secure and reliable trading environment, safeguarding both traders and the overall integrity of our platform. For a more detailed calculation, please consult the 'Formulaic for Circuit Breaker'.