Circuit limit
A circuit limit is the maximum percentage by which a share’s price is allowed to rise or fall in a single trading day, set by the stock exchange.
What it is
Exchanges set a daily price band for many shares, calculated from the previous day’s closing price. Commonly used bands are 2%, 5%, 10% and 20%. The top of the band is the upper circuit and the bottom is the lower circuit.
Trades cannot happen outside the band that day. The exchange decides which band applies to which share and can change it. Shares in the futures and options segment usually do not have a fixed daily band in the same way; the exchange uses other, more flexible controls for them.
Separately, there are market-wide circuit breakers that halt all trading if the main index moves by a large set percentage in a day.
How to read it
When a share hits its upper circuit, there are many buyers and almost no sellers at that price. Trading continues at the limit price, but buy orders often go unfilled. A lower circuit is the opposite: sellers queue up and buyers vanish.
Shares that hit circuits often, especially small and thinly traded ones, are usually on tight bands because the exchange considers them risky.
Why it matters for you
If you hold a share stuck at its lower circuit, you may not be able to sell at all for days. A stop-loss order does not help if there is no buyer.
A string of upper circuits in a small company can attract attention, but it can also be a sign of low liquidity or price manipulation. Understanding the business matters more than the momentum.
Working out the circuit
A share closed at ₹200 yesterday and is on a 5% price band. Today it can trade between ₹190 (lower circuit) and ₹210 (upper circuit). If bad news arrives and everyone wants to sell, the price can fall to ₹190 and stop there, with sell orders piling up and few buyers.
Common mistakes
- Assuming you can always sell when a share is falling. At the lower circuit there may be no buyers.
- Chasing shares that keep hitting upper circuits without understanding why.
- Thinking a circuit limit protects you from losses. It only spreads them over more days.
A share closed at ₹500 and has a 10% band. What is today’s upper circuit?
- ₹550
- ₹510
- ₹600
Show the answer
₹550. The upper circuit is 10% above the previous close: ₹500 + ₹50 = ₹550.
Common questions
What happens when a stock hits the upper circuit?
The price cannot go higher that day. Trading continues at the limit only if someone is willing to sell, so many buy orders stay pending.
Can I sell a stock in the lower circuit?
Only if there is a buyer at that price. In heavy selling, there may be very few, and your order may not be filled.
Who decides the circuit limit?
The stock exchanges set and revise price bands for each share, based on factors like its volatility and trading activity.
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