What it is:
How it works (Example):
Why it Matters:
Some markets also use price bands as "circuit breakers" to prevent extreme fluctuations in market prices. In these situations, if a security's price rises by, say, 10% of its opening price or within a certain time limit, the exchange suspends trading on that security for several minutes in order to calm the markets and allow sellers and buyers to find each other in a more orderly way.
Price bands are used to provide guidance to buyers. They are also frequently used in importing and exporting, whereby countries set top and bottom prices for certain goods sold within its borders. Countries then subject goods whose prices fall below a certain price to taxes or duties to force the price back into the band.