Circuit Limit

What are the circuit limits in stock trading?

The circuit limits are exchange-set rules that prevent stock prices from extreme ups and downs. These limits are like speed breakers, which do not allow the stock prices to fluctuate drastically in one trading session.

Types of Circuit Limits

1. Upper Circuit Limit:

• The maximum price a stock can reach in a single trading day.

• When the price reaches this limit, no buy orders are permitted unless the price band is revised.

2. Lower Circuit Limit:

• The minimum price to which a stock can fall in one day.

• When this limit is reached, no sell orders are possible until trading resumes.

How are circuit limits set?

• Percentage Ranges:
  These circuit limits range between 2% and 20%. Suppose a stock closes at ₹100 with a circuit limit of 10%, which would then mean that for the next day, this stock would trade between the range of ₹90 to ₹110.

• Dynamic Adjustments of F&O Stocks:
  F&O category stocks have flexible price bands that are contingent upon the prevailing conditions in the market and hence allow a bit more elbow room in terms of trading.

Why do the limits of a circuit matter?

• Whenever the stock reaches the upper circuit, this is a reflection of substantial buying interest in the concerned security.

• If it reaches the lower circuit, it means there is strong selling pressure.

Circuit limits help:

• Cushion investors from sudden price shocks.

• Stabilize the Stock Market.