The upper circuit is the maximum price the stock can trade at in a single and specified day, whereas the lower circuit is the minimum price the stock can trade at that day. Upper and lower circuits are methods employed in the Indian stock market to control severe price swings of stocks or securities. These price bands and circuit filters stop equities from becoming overbought or oversold, which might lead to volatile market circumstances.
Upper Circuit Meaning
An upper circuit is a price band set by the stock exchange that refers to the maximum percentage increase for a particular stock or security within a single trading session. When a stock hits its upper circuit, it signifies that its price has reached the upper limit permitted by the stock exchange for that specific trading day. The upper circuit is the maximum a stock price can rise in a single day. If the price hits the upper circuit, trading in that stock is halted for the rest of the day.
Lower Circuit Meaning
A lower circuit refers to the minimum permissible price movement for a stock or security during a single trading session. When a stock hits its lower circuit, it indicates that its price has reached the lower limit set by the stock exchange for that trading day. The lower circuit is the maximum a stock price can fall in a single day. If the price hits the lower circuit, trading is again halted for the rest of the day.
How To Calculate Upper And Lower Circuit Of A Stock?
The upper and lower circuit limits are calculated as a percentage of a stock’s previous day’s closing price. The stock exchanges typically set this percentage limit at 10%.
To calculate the upper circuit, take the stock’s previous closing price. Then, calculate 10% of this closing price. Add this 10% value to the closing price. It gives you the upper circuit figure.
For example, if the previous closing price of a stock was ₹100, then 10% of ₹100 would be ₹10 (100 * 10% = 10). Add this ₹10 to the closing price of ₹100. So the upper circuit = ₹100 + ₹10 = ₹110.
To calculate the lower circuit, take the same previous closing price. Calculate 10% of this closing price. But subtract this 10% value from the closing price instead of adding. This gives you the lower circuit.
Continuing the above example, 10% of ₹100 closing price is ₹10. Subtract this ₹10 from ₹100. So the lower circuit = ₹100 – ₹10 = ₹90.
How To Buy Upper Circuit Shares?
You can buy upper circuit shares by placing an order during the suspension. However, sellers are unable to place sell orders until trading has resumed. The stock may continue to trade at its upper circuit stock price after trading has resumed, or it may decline under that level. Here are the steps to buy shares that are trading at the upper circuit limit:
- Identify stocks that have hit their upper circuit limit for the day. You can check stock exchange platforms or business news websites to find these.
- Carefully analyze the company and stock to understand why it has risen sharply. Fundamental factors or positive news or events could be driving the price up.
- Evaluate if the stock is overvalued at the upper circuit level or has more upside potential. Be cautious of sudden spikes not backed by fundamentals.
- Place an intraday buy order for the stock at the upper circuit price. But note that trading may resume only after a few hours if the circuit is breached in early trading.
- Your order will only get executed if the stock resumes trading below the upper circuit price after the cooling-off period. The order won’t go through if it opens the circuit again.
- Be prepared to book profits quickly, as stocks often correct after a sharp intraday rise. Keep a tight stop-loss to cut losses in case of a price downturn.
- Only invest in upper circuit stocks if you understand the business well and see long-term potential beyond a single day’s spike. Don’t rely on short-term momentum alone.
How To Sell Lower Circuit Shares?
The easiest way to sell lower circuit shares is by placing an order during the pre-open session. You should put a sell order in the pre-market at 9:00 AM. Trading on the lower circuit is typical due to the volatile nature of the market. Here are the steps to sell shares that have hit their lower circuit limit:
- Identify stocks that have touched their lower circuit for the day. Check stock exchange platforms or news sites.
- Analyze why the stock price fell sharply – was it due to company-specific news or a broader market correction?
- Evaluate whether the fall is a temporary blip or the downtrend may continue. Fundamentals will help assess the outlook.
- Place an intraday sell order for the stock at the lower circuit price. Trading may resume only after a few hours if the circuit is breached.
- Your order will get executed if the stock resumes trading above the lower circuit price after the cooling-off period.
- Be ready to book profits quickly, as lower circuit stocks often see volatility. Maintain a stop-loss in case the price bounces back up.
- Consider selling if you don’t have a long-term view of the stock or if the fall seems unjustified. Otherwise, hold on to quality businesses.
- Don’t panic-sell at the lower circuit out of fear. Make decisions based on research rather than short-term price actions.
How To Exit From Lower Circuit Stock?
You can exit from the lower circuit stock by placing an order during the pre-open session or an AMO. Leaving the lower circuit is advised since continued exposure might result in significant losses for the investor. Here are a few ways to exit or sell a stock that has hit its lower circuit limit:
- Place a Stop-loss Order: Set a stop-loss order at a price slightly below the lower circuit level. This ensures you exit automatically if the stock continues to fall further.
- Sell on Circuit Breach: Monitor the stock and sell as soon as trading resumes after the circuit is breached. The price may recover temporarily post-resumption.
- Sell on Intraday Bounce: If the stock sees an intraday bounce after the circuit, look for opportunities to exit on minor rallies. Don’t wait for a complete recovery.
- Average Down and Exit: If you have faith in the stock long-term, average down your purchase cost by buying more at lower levels. Then, exit fully once the price rises above your average.
- Exit on Weakness: If the stock continues falling after multiple sessions at the lower circuit, accept losses and exit rather than hold out of hope.
- Exit on Strength: Monitor news/developments and exit on any major positive news-driven rallies that may happen in the future.
We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, commodity and hence we bring you the important topics and areas that you should know:
What Is Upper Circuit And Lower Circuit In Share Market – Quick Summary
- The upper circuit is the highest price a stock can hit on a specific trading day, while the lower circuit is the lowest price a stock can hit on the same trading day.
- The upper circuit is the highest percentage or price gain that a stock or investment can have on a given trading day.
- The lower circuit represents the greatest percentage or price fall permitted for a stock or investment on any given trading day.
- The upper and lower circuit limits for a stock are normally defined by the stock exchange where it is listed, and they are calculated using a variety of parameters.
- You can put a limit order at the circuit limit price or higher to buy shares that are trading at their upper circuit limit and wait for a seller to match your order when trading resumes.
- To sell shares trading at their lower circuit limit, place a limit order at that price or lower and wait for a buyer to match your order when trading restarts.
- To exit a lower circuit stock, put a limit order at or slightly over the circuit limit price (if permitted by exchange rules) and wait for a buyer to match your order when trading restarts.
Enjoy Investing Laced with Cutting-edge Features and Zero Brokerage with the Alice Blue Trading App!
What Is Upper Circuit And Lower Circuit In Share Market – Frequently Asked Questions
What Is Circuit In Stock Market?
Circuit in the stock market is a price band set up by the stock exchange that refers to the maximum increase or decrease in a stock’s price from the previous day’s closing price. This limit is called the upper circuit or lower circuit.
What is the upper and lower circuit?
The upper circuit is the maximum stock price or percentage that can rise in a day, whereas the lower circuit is the maximum it can fall. Both are usually set at 10% of the previous closing price by stock exchanges.
What Happens If A Stock Hits Upper Circuit?
If a stock hits the upper circuit limit during the trading session, its price is frozen for the rest of the day, and trading in its shares is halted.
Who Decides Upper Circuit And Lower Circuit?
Stock exchanges decide the upper and lower circuit limits. In India, it is usually set at 10% by NSE and BSE.
Can I Sell Shares In Lower Circuit?
Yes, you can place orders to sell shares even if they are in the lower circuit band. Orders will get executed if the price moves above the lower circuit.
Can I Buy Upper Circuit Shares?
Yes, you can place buy orders for stocks trading at the upper circuit limit. Orders will get filled if the price moves below the circuit after the market reopens.
Does The Price Fall After The Upper Circuit?
Not always. Sometimes, prices continue to rise after the resumption. Other times, there is a correction. It depends on the demand-supply factors at play.
How Long Can A Stock Stay In The Upper Circuit?
There is no fixed duration. It depends on the price movements. Stocks can stay at the circuit for a few hours or days based on volatility and trading activity.
To understand the topic and get more information, please read the related stock market articles below.