Stock Market · Introduction to Stock Markets

Upper & lower circuits

Circuits are guardrails. They prevent a stock from moving too far in a single session, in either direction.

How they work

SEBI assigns each stock a price band: 5%, 10%, or 20%. If the stock hits the upper limit, no one can buy at a higher price for the rest of that session. Hit the lower limit, and no one can sell lower.

• 5% circuit: very restricted, used for volatile or manipulated stocks
• 10% circuit: moderate restriction
• 20% circuit: most stocks including large-caps

Upper circuit, buyers want in, but sellers won't go higher. Stock is frozen at the top. Multiple days in upper circuit = massive demand outstripping supply. Could be a genuine breakout or a pump scheme.

Lower circuit, sellers want out, zero buyers remain. Stock frozen at the bottom. This is a panic event. When a large-cap hits lower circuit, something serious is happening, fraud allegation, catastrophic results, regulatory ban.

> Yes Bank hit lower circuit for multiple consecutive sessions in March 2020 as it neared collapse. If you held and couldn't sell, you were stuck watching your wealth evaporate.

Index circuit breakers

Nifty and Sensex also have market-wide circuit breakers at 10%, 15% and 20%. How long trading stops depends on WHEN the level is hit, not just which level: hit before 1 PM and a 10% move buys a 45-minute halt and a 15% move 1 hour 45 minutes; hit late in the session and the same levels buy 15 minutes, or nothing at all. A 20% move stops trading for the rest of the day whenever it happens. Market-wide halts are rare. A handful of days since the system began in 2001, most recently March 2020.

RareMarket-wide index halts. A handful of days since the system began in 2001

20%Maximum single-day move allowed for most stocks

Takeaway. Circuits protect you from flash crashes. A lower circuit means you can't exit, which is why over-concentration in one stock is dangerous.