What are Upper Circuit and Lower Circuit in the Stock Market?
Introduction:
If you follow the Indian stock market, you may often hear terms like “this stock hit the upper circuit” or “shares locked in the lower circuit.” But what do these terms really mean? In this blog, we will explain upper circuit and lower circuit in simple words with examples.
What is Upper Circuit in the Stock Market?
- An upper circuit is the maximum price limit up to which a stock can rise in a single trading day.
- Once the stock reach+21
- ';/lkh7es this limit, trading automatically stops at that price, and no one can buy at a higher price.
- Example: If a stock is at ₹100 and the upper circuit is 20%, the maximum it can go in a day is ₹120.
Why Upper Circuit Happens?
- High demand for the stock
- Positive news about the company (like strong results, new project, merger)
- Market sentiment turning bullish
What is Lower Circuit in the Stock Market?
- A lower circuit is the maximum price limit down to which a stock can fall in a single trading day.
- Once the stock touches this limit, trading automatically freezes at that price, and no one can sell below it.
- Example: If a stock is at ₹100 and the lower circuit is 20%, the minimum it can fall in a day is ₹80.
Why Lower Circuit Happens?
- Panic selling by investors
- Negative news about the company (losses, fraud, poor results)
- Weak market sentiment or global crash
Who Decides the Circuit Limits?
- SEBI (Securities and Exchange Board of India) and stock exchanges set circuit limits.
- Circuits are usually fixed at 2%, 5%, 10%, or 20% depending on the stock.
Why Circuits are Important?
- To control extreme volatility in the market
- To protect investors from sudden crashes or manipulation
- To give time for investors to think before making decisions
Conclusion:
Upper circuit means the stock has reached its maximum upward movement for the day, while lower circuit means it has fallen to its maximum downward limit. Understanding these terms helps investors avoid panic and make smarter trading decision's.
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