What is Lower Circuit in Stock Market?

LOWER CIRCUIT STOCKS

When trading in the stock market, you might have seen the term “Lower Circuit.” Just like an upper circuit controls sudden price increases, a lower circuit is meant to control sudden price falls. For beginners, this is one of the most important concepts to understand before investing.

🔹 Meaning of Lower Circuit

A Lower Circuit is the minimum limit up to which a stock’s price is allowed to fall in a single trading day. Once this limit is reached, trading in that stock is either halted or restricted for the day. This rule is introduced by stock exchanges (NSE, BSE) to avoid panic selling and protect investors from extreme losses.

For example:

If a stock is trading at ₹100 and the lower circuit is 10%, then the lowest price it can reach for that day is ₹90. If the price touches ₹90, no further sell orders will be executed, and the stock will be locked in the lower circuit.

🔹 Why Do Lower Circuits Happen?

• Lower circuits are usually triggered because of:
• Negative news about the company (poor results, fraud, penalties, etc.).
• Market panic due to global or domestic events.
• Heavy selling pressure where too many investors are trying to sell the stock.

🔹 Effects of Lower Circuit

• Stocks in lower circuit become very difficult to sell because no buyers will be available.
• It creates fear among investors, especially beginners.
• It acts as a safety tool to stop the stock from crashing without limit.

🔹 Circuit Limit Range

1. The range for lower circuits, like upper circuits, is usually 2% to 20%, depending on the category of the stock.
2. Small-cap and mid-cap stocks are more prone to hitting circuits compared to large-cap stocks.

✅ Conclusion:

A Lower Circuit is a mechanism designed to stop excessive downward movement of stock prices. While it helps in preventing total crashes, it also shows that too many sellers are in the market. As an investor, always research before investing and avoid buying stocks just because they look “cheap” after hitting a lower circuit.

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