Many stock market terms are often confusing to people, and if you are a beginner in the stock market, you must have come across the term Price Freeze in Stock Market. So today, in this article, we will see the meaning of Price Freeze in the stock market, its types, and the reasons for price freeze.
What is Price Freeze in Stock Market
In general, price freezing means a temporary ban on price increases for a particular product or service. But in the stock market, price freeze has a different meaning.
Daily, millions of traders buy and sell stocks in the stock market, but for any reason, if there is a lack of availability of sellers or buyers in any stocks on either side of the current market price. This situation is called a Price Freeze in the Stock Market. When the market freezes, then the trading stops.
When a trader’s account gets frozen, they are shut out until their account is thawed out. There are many reasons a trader’s account or a stock exchange might have frozen. We will talk about those reasons later in the article.
Some might think that the Price Freeze is because of the circuit limit, but this is not true. It happens due to the non-availability of buyers and sellers on the stock market for that stock.
Read More: How to Select Stocks for Intraday Trading?
Before getting any further in, let’s talk about what is an upper circuit and a lower circuit in the stock market.
Upper Circuit in Stock Market: Upper Circuit in the stock market is the highest price a stock can reach on a particular trading day.
Lower Circuit in Stock Market: Lower Circuit in the stock market is the lowest price a stock can hit on a particular day of trading.
To explain Upper Circuit and Lower Circuit, we can say, in the Upper Circuit case, there will be only buyers and no sellers in the market. In the Lower Circuit case, there will be only sellers and no buyers available in the stock market.
Now, let’s see the types of price freeze in the stock market.
Types of Price Freeze Types in Stock Market
There are two kinds of price freezes in the stock market. One is Buying Freeze, and another one is Selling Freeze.
1. Buying Freeze In Stock Market
When you want to purchase a particular stock from an exchange, but there isn’t any seller for that specific stock, this is called a Buying Freeze. You would be unable to purchase that specific stock. However, you can sell the share at the maximum rate bid by the buyer if there is a buying freeze.
Still, if you want to buy that buying freeze stock from the stock market, then you will have to give an order to purchase that stock at the same as the highest rate offered by another buyer, and there is a condition that you cannot write less price compared to the highest price into order entry book.
2. Selling Freeze In Stock Market
Selling Freeze is just the opposite of Buying Freeze in the stock market. In Selling Freeze, you cannot sell your stock immediately because there is no available buyer to purchase that stock, but in this situation, you can buy that at the lowest price offered by the seller.
But still, if you want to sell your stock, you have to give an order to sell at the same lowest price as offered earlier. You cannot give an order for the sale of your stock less than that lower price; then, your sale order will be executed when any buyer comes.
There’s one more big difference between Buying Freeze and Selling Freeze in the stock market.
Buying Freeze is different from Upper Circuit. In Upper Circuit, the limit of price holds more importance than the seller, but in buying freeze, the seller holds more importance than the limit of price.
Selling Freeze is different from Lower Circuit. In the lower circuit, the limit of price holds more importance than the buyers, but in the Selling Freeze situation, buyers hold more importance than the limit of price.
Read More: Different Types of Order in Stock Market
Reasons for Price Freeze In Stock Market
1. Technical Glitches
Price Freeze also happens due to technical glitches. These trading halts are typically enacted in anticipation of a news announcement or to correct an order imbalance due to a technical glitch, or you can say due to regulatory concerns. Circuit breakers can also be severe downward moves that can trigger halts. Power failure can be part of a technical glitch.
2. Insider Trading
Trading of a company’s stocks or other securities by individuals with access to confidential information or non-public information about the company is called Insider Trading. It means buying or selling with knowledge not available to the public. This way, investors end up with accounts frozen.
3. Nobody Available to Buy
The market is always busy in trading, but still, there comes a time when buyers are not available. At this time, the market freezes because nobody has the full knowledge to trade successfully in the stock market.
4. Pump and Dump
The type of securities fraud that has artificial inflation called the Pump of the security price through false or misleading statements regarding the security’s price is called Pump and Dump. By selling these securities, fraudsters can earn a huge profit. The new owner of the shares will likely lose a substantial part of their capital because the security’s price will quickly fall, so, for this reason, the pump and dump scheme is considered an illegal activity.
So, we have discussed Price Freeze in stock market, its types, and the reasons for the price freeze. If you want to learn more about the stock market and earn a handsome income, then you can join us at The Thought Tree. We provide the best stock market course in Jaipur. We have expert faculty members with 8+ years of experience. T3 also provides mentorship and live trading practise to its students.