What Are Upper and Lower Circuits?

Every day, Indian exchanges set a price band for most stocks: the highest and lowest price it may trade at, measured from the previous day’s closing price. The top of the band is the upper circuit, the bottom is the lower circuit. Bands are usually 2%, 5%, 10% or 20%, depending on the stock.

Upper circuitfor example +10%Yesterday’s closeLower circuitfor example −10%price hits the upper limit: only buyers left, trading stallsOrders priced outside the band are rejected
A price band: the stock can move freely inside it, but no trade can happen outside it.

What Happens When a Stock Hits the Upper Circuit?

The exchange rejects any order priced above the limit. Buyers pile up at the upper circuit price, but sellers mostly don’t want to sell that cheap, so very few trades happen: you see a long queue of buyers and almost no sellers. At the lower circuit it’s the opposite: plenty of sellers, almost no buyers, and it can be hard to sell at all.

Why Do Price Bands Exist?

  • To stop runaway moves from rumours, panic or manipulation, especially in small, thinly traded stocks.
  • To catch mistakes: a wrongly typed order (an extra zero) can’t trade at an absurd price.
  • To give people time to see news and think before the price moves further the next day.

Large stocks traded in futures and options don’t have a fixed daily band. Instead the exchange uses a wider, adjustable band that it can widen during the day if the price keeps pushing against it.

Newly listed shares have their own process on listing day: see How IPO Allotment Works.

Market-Wide Circuit Breakers

Separately, if the whole market falls or rises sharply, measured by the Nifty 50 or Sensex, trading in all stocks pauses. The triggers are moves of 10%, 15% and 20%. How long trading stops depends on the time of day; at 20% it stops for the rest of the day. US markets have similar breakers, at 7%, 13% and 20% on the S&P 500.

For Engineers: A Check on Every Order

The exchange checks every incoming order against the band before it ever reaches the order book: a simple comparison, but on every one of millions of orders, in microseconds. Your broker usually runs the same check first, so an out-of-band order is rejected on your phone before it is sent.

This article explains how the systems work. It is not financial or investment advice, and limits and rules change: check the current ones with SEBI, your broker or the exchange.