What is lower circuit and upper circuit?
Circuits differ for stocks and indices. For indices like Nifty and Sensex, if the market hits certain circuit levels (like 10%, 15%, or 20%), trading may be halted for a period of time to calm investor sentiment.
In the stock market, circuit limits are regulatory measures set by SEBI and stock exchanges to control extreme volatility. - Upper circuit: The maximum price up to which a stock can rise in a single trading session. - Lower circuit: The maximum price down to which a stock can fall in a single trading session. These limits help protect investors from sudden price manipulations.
These terms, Lower Circuit (LC) and Upper Circuit (UC), are critical concepts in the stock market, especially for individual stocks. They represent price limits set by the stock exchange to prevent excessive, sudden price movements in a single trading session. These mechanisms are put in place primarily to protect investors from extreme volatility and to allow the market time to absorb significant news or trading imbalances. | Circuit Type | Meaning | Impact | | :--- | :--- | :--- | | Upper Circuit (UC) | The maximum price at which a stock can trade on a given day. | When a stock hits its UC, it means there are only buyers (buyers are willing to buy at that maximum price or higher, but no one is willing to sell). Trading for the stock is typically halted for the rest of the day, or for a specified duration. | | Lower Circuit (LC) | The minimum price at which a stock can trade on a given day. | When a stock hits its LC, it means there are only sellers (sellers are willing to sell at that minimum price or lower, but no one is willing to buy). Trading for the stock is also usually halted. | These limits are set as a percentage range (e.g., 2%, 5%, 10%, or 20%) relative to the stock's closing price from the previous day. The applicable percentage varies based on the stock's volatility, market capitalization, and whether it's part of an index.
Think of circuits as “speed breakers” in the stock market. For example, if a stock trading at ₹100 has a 10% circuit, then the upper circuit will be ₹110 and the lower circuit will be ₹90. If demand is high, it may get stuck at upper circuit; if selling pressure is heavy, it may hit the lower circuit.