If you’re new to the stock market, you might have come across words like upper circuit, lower circuit, or even circuit breaker in stock market. These are common terms used by traders and investors. But what do they really mean?
In this article, we will explain the Upper Circuit and Lower Circuit in Stock Market meaning in the easiest way possible. Whether you’re just starting to learn or want stock market terms explained in a simple way, this guide will help you understand the basics of trading clearly.
Meaning of Upper Circuit and Lower Circuit in Stock Market
Upper circuit and lower circuit are limits set by the stock exchange to control big ups and downs in stock prices. You can think of them like speed breakers for stocks. These limits help stop panic buying or selling in the market.
Upper Circuit
It is basically a price rise limit set by stock exchanges, which is the highest price a stock can go up to in a single trading day. If the stock touches this price, trading in that stock is paused or stopped for some time. This is done to stop too much buying and keep the market stable.
Example: Let’s say a stock is trading at ₹100 and has a circuit limit of 10%.
- If the stock price goes up at ₹110 (10% increase), it hits the upper circuit and trading is stopped because the price went too high.
Lower Circuit
Lower circuit is a price drop limit that is also set by stock exchanges, which is the lowest price a stock can fall to on that day. If the stock hits this level, trading is also paused or stopped to avoid panic selling and big losses.
Example: Let’s say a stock is trading at ₹100 and has a circuit limit of 10%.
- If the stock price drops to ₹90 (10% decrease), it hits the lower circuit and trading is stopped because the price fell too much.
After hitting the upper circuit or lower circuit, trading stays paused unless the stock exchange decides to reopen it.
Why Are Circuits Important in the Share Market?
The circuit breaker in the stock market works like a safety switch. It helps stop sudden crashes, panic, or unfair price moves. Here’s why circuits are very important:
- Investors Protection: Circuits stop a stock’s price from falling or rising too fast, helping investors avoid big losses.
- Control Panic Selling: If the market is falling fast, trading is paused for some time. This helps reduce fear and prevents people from selling in panic or excitement.
- Avoid Artificial Inflation: In a fast-rising market, it stops fake price jumps and pump-and-dump tricks.
- Encourages Rational Thinking: Circuits give traders time to think, check the news, and make better decisions instead of reacting quickly.
How Are Upper and Lower Circuits Decided?
Stock exchanges like NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) decide the circuit levels. They look at how much the stock usually moves and how risky it is.
Some common circuit limits are 2%, 5%, 10%, and 20%.
Stocks that move a lot like small-cap or highly volatile stocks get tighter limits like 2% or 5% and big, stable companies may get wider limits like 10% or 20%.
Example: A small-cap stock that jumps or drops too much in the market in a day might have just a 2% circuit to protect investors from taking risks.
What Happens When a Stock Hits the Upper or Lower Circuit?
When a Stock Hits the Upper Circuit:
- You can’t buy the stocks anymore because no one is selling it anymore for some time.
- Trading may stop or only selling is allowed if the exchange permits.
- The stock price stays at the highest allowed level until someone decides to sell.
When a Stock Hits the Lower Circuit:
- You can’t sell the stock because no one is willing to buy it.
- Trading might be paused for a while.
- The stock price gets struck at the lowest level until buyers come in.
In both cases, it shows strong market emotions – either very bullish, which means lots of buying or bearish, which means lots of selling.
Can Circuit Limits Change?
Yes, circuit limits can change. The stocks exchange checks and updates them based on following factors:
- How much the stock price has been moving up or down, which is called volatility.
- Any big news about the company and overall market behaviour.
- Any rules or safety steps needed by regulators.
If a stock hits the upper circuit or lower circuit too often, the exchange might increase or decrease the limit to stop extreme price moves or wrong activities.
Common Misconceptions About Upper and Lower Circuits
- Stock will always go up after hitting upper circuit: It is not true. A stock may go up if people keep buying it, but it can also fall the next day if the company’s performance doesn’t support the rise.
- Lower circuit means the company is bankrupt: It is wrong. A stock can only hit the lower circuit due to panic, bad news, or a falling in the entire sector. It doesn’t always mean the company is shutting down or going bankrupt.
Note: Circuit breakers are not just for individual stocks. They also apply to the entire stock market like NIFTY or SENSEX.
How Do Index-Wide Circuit Breakers Work in India?
If the NIFTY or SENSEX moves sharply up or down, index-wide circuit breakers are triggered to pause trading for some time. This helps control panic or extreme excitement in the market shown by the investors.
| Market Movement | Trading Halt Duration |
| 10% up or down | 45 minutes |
| 15% up or down | 1 hour 45 minutes |
| 20% up or down | Trading is suspended for rest of the day |
These rules are set to protect the broader market from big crashes or sudden spikes during extreme situations.
How Should Beginners React to Circuit Hits?
If you’re a beginner, don’t buy or sell just because of the upper circuit or lower circuit. Here’s what you should do when circuit hit:
- Do you research: Check the latest news about the company, company results, and performance before taking any step.
- Avoid impulsive buying: Don’t buy a stock only because it’s in the upper circuit. Because it may fall later and you can lose money.
- Don’t panic sell: If a stock hits lower circuit, tru to understand the real reason behind the fall and take further steps accordingly.
- Diversify your money: Don’t invest all your money in one stock – especially in risky or fast-moving ones. Instead of that, spread your investment to balance out the risks and returns.
Always remember, upper and lower circuits are made to stop sudden price changes and protect investors. Use them as a signal to research, not as a reason to panic or rush.
Conclusion
Understanding the upper circuit lower circuit meaning is very important if you want to invest in the share market. These are not just technical terms, they help protect investors from sudden big changes in stock prices.
By learning how the circuit breaker in the stock market works, you can avoid reacting to market panic or hype. Instead, you will be able to stay calm and make smart choices based on facts.
FAQs
What happens if I place a buy order after the upper circuit is hit?
If you place a buy order after the upper circuit is hit, your order will stay pending. It won’t go through because no one is selling at that price.
Can I sell a stock stuck in the lower circuit?
You can try to sell a stock that is in the lower circuit, but your order won’t work unless a buyer is available at the price.
How long does a circuit breaker last?
It depends. For individual stocks, trading starts again only when new buyers or sellers come in. For indices, there is a fixed pause time, like 45 minutes or 1 hour.
Do upper and lower circuits happen daily?
No, they occur only when a stock’s price moves beyond the daily set limit, which is rare for stable stocks.
Is hitting the upper circuit a good sign?
When a stock hits the upper limit, it means many people want to buy it. But before investing, check the reason behind it – like news, company results, or market rumors.