What Are Upper Circuit and Lower Circuit in Stock Market?

What is Upper Circuit and Lower Circuit

In the stock market, every share is allowed to move only within a certain price range in a single day. This range is known as the circuit limit, and it is designed to control volatility and prevent disorderly trading.

Beginners who are just learning about trading rules also check details like stock market time to understand when these limits apply during the day.

When demand pushes a stock too high, the upper circuit acts as a ceiling. When selling pressure drags a stock down, the lower circuit works as a floor. These limits are not random.

They are calculated by the exchanges, based on the previous day’s closing price, and applied within the daily percentage band allowed by SEBI.

Circuits are important because they protect investors from sudden shocks and give the market time to absorb new information. They also reflect market sentiment: hitting an upper circuit often signals strong buying interest, while touching a lower circuit points to heavy selling and fear.

These strong moves are often linked with chart signals such as bullish candlestick patterns during rallies or bearish candlestick patterns when fear dominates.

Upper Circuit Meaning vs Lower Circuit Meaning

• Upper Circuit Meaning: The maximum price a stock can reach in one trading session. Once this level is hit, trading stops at that price and no further upward movement is allowed.

• Lower Circuit Meaning: The minimum price a stock can fall to in a trading session. If the price touches this limit, trading pauses and no further decline is permitted.

How Do Circuits Work?

Circuits work through a simple rule: a stock can only move within a price band set for the day. This price band in stock market is calculated from the previous day’s closing price, and the limits vary depending on the stock’s category and liquidity.

For example, if a stock closed at ₹100 and has a 10% circuit, its upper circuit limit will be ₹110 and its lower circuit limit will be ₹90. The exchange will not allow trading beyond this range.

When a stock hits its upper circuit, buying demand is strong but no sellers are available, so the price freezes. When it hits the lower circuit, selling pressure dominates but no buyers step in, leaving the stock stuck at the floor.

This system gives the market a “pause button.” It slows down panic-driven moves, keeps daily price fluctuation within limits, and ensures investors have time to reassess before trading resumes.

SEBI Rules and Stock Exchange Limits

The SEBI circuit limit rules define how much a stock can move up or down in a single trading day. These limits usually range from 2% to 20%, depending on the stock’s category, liquidity, and volatility. The calculation is always based on the previous day’s closing price.

For example, if a stock closed at ₹500 with a 10% band, it can trade only between ₹450 and ₹550 the next day. Orders outside this range are automatically rejected.

In the case of Futures and Options (F&O), there is no fixed daily circuit. Instead, exchanges apply a dynamic 10% price band on either side. Once the band is hit, a short cooling period of 15 minutes applies before the range is relaxed further. This helps keep trading orderly while allowing flexibility in high-volume segments.

NSE vs BSE Differences

Both NSE and BSE apply circuit filters, but the percentage bands can vary depending on the group of stocks. Actively traded stocks often have tighter bands of 2–5%, while more speculative categories can have wider bands of 10–20%.

Each exchange publishes updated circuit limits daily on its official website, so traders can check the exact band before placing orders.

What Happens to Buy and Sell Orders in Circuit Situations

When a stock touches its upper circuit in stock market or lower circuit in stock market, trading behavior changes immediately.

These rules are part of the SEBI circuit limit rules and are applied through the price band in stock market to ensure market volatility control.

Upper circuit scenario:
 

• The stock hits its maximum allowed price for the day (upper circuit limit).

• Buyers remain active, but no sellers are available.

• If you hold the stock, you can place a sell order at the circuit price.

• New buy orders stay pending because no one is willing to sell.
   

Lower circuit scenario:
 

• The stock falls to its minimum price band (lower circuit limit).

• Sellers queue up, but there are no buyers.

• Sell orders remain unexecuted as demand disappears.

• Occasionally, quick buyers may step in, but in most cases the stock stays stuck.
   

This situation is often described as a stock price freeze. Orders placed outside the band are automatically rejected under stock exchange regulations. Trading remains paused until the circuit filter is revised or the next session begins.

For beginners, it is important to know:

• Upper circuit meaning = trading freeze caused by excess demand.
   

• Lower circuit meaning = trading freeze caused by excess supply.
   

• These halts act as a circuit breaker mechanism, a form of stock market safety measures designed to stop panic moves.
   

• On NSE and BSE, such trading halt in NSE/BSE can last until the end of the session, depending on the rules in place.

Why Do Stocks Hit Circuits?

Stocks hit the upper circuit and lower circuit when buying or selling overwhelms the price band in stock market set for the day.

Under SEBI circuit limit rules, NSE/BSE use this circuit breaker mechanism to enforce the daily price fluctuation limit, trigger a trading halt in NSE/BSE if needed, and support market volatility control and investor protection rules SEBI.

Upper Circuit Rule

An upper circuit in stock market happens when buying demand pushes a stock to its upper circuit limit. At this point, the price locks at the ceiling for the session. There are only buyers in the order book and no sellers, creating a stock price freeze.

This reflects bullish sentiment but also restricts liquidity, since trades cannot move beyond the set range under stock exchange regulations.

Lower Circuit Rule

A lower circuit in stock market is triggered when selling pressure drags a stock to its lower circuit limit. Once this happens, only sellers remain in the order book and no buyers step in, leaving sell orders unexecuted.

This trading halt in NSE/BSE creates a floor for the day and is meant to prevent panic-driven collapses. It signals bearish sentiment and, like the upper circuit rule, it acts as part of SEBI’s stock market safety measures and investor protection rules.

Company, Economic and Market Factors

Stocks often touch the upper circuit limit or the lower circuit limit because of events beyond simple supply and demand. Company news such as earnings, mergers, or debt issues can drive sharp moves.

Earnings reports are one of the strongest drivers, making earnings per share (EPS) a key metric that often pushes stocks into circuit zones.

At the same time, market sentiment plays a big role: optimism can push prices to the upper circuit, while fear or negative headlines can send them to the lower circuit.

Global events, geopolitics, commodity shocks, or pandemics, can also trigger a stock market circuit filter under SEBI circuit limit rules.

Difference Between Upper Circuit and Lower Circuit

The difference between upper circuit and lower circuit lies in how price movement is capped during a trading session. Both are part of the circuit breaker mechanism used in NSE and BSE to maintain order and protect investors.

Both limits are defined by SEBI circuit limit rules and reflect the daily price fluctuation limit set by the exchange. Together they serve as stock market safety measures and part of investor protection rules SEBI.

Impact on Traders and Investors

The upper circuit and lower circuit affect both short-term traders and long-term investors. These limits protect the market, but they also create challenges.
 

• For traders: Circuits can block exit or entry points. In intraday trading halt situations, positions may get stuck. Lack of liquidity during a stock price freeze makes it harder to react quickly.
   

• For investors: Circuits work as stock market safety measures under investor protection rules SEBI. They prevent extreme losses, reduce manipulation, and maintain orderly trading. But they can also delay decisions if a stock is locked at its upper circuit limit or lower circuit limit.
   

Overall, circuits balance protection with restriction. They form part of stock exchange regulations to keep trading stable, but anyone active in the market must be aware of the risks of being trapped in a freeze.

Strategies to Handle Circuit Situations

When a stock hits the upper circuit or lower circuit, it’s easy to panic. Simple strategies can help manage risk and spot opportunities without falling into herd behaviour.
 

• Monitor Circuit Limits: Keep track of the price band in stock market published daily by NSE/BSE. This shows the daily price fluctuation limit and helps avoid surprises.
   

• Use Stop-Loss Orders: Setting a stop-loss can limit downside if a stock approaches the lower circuit rule. It’s a basic tool for market volatility control.
   

• Avoid Herd Mentality: Just because a stock is in upper circuit stocks today doesn’t mean it will keep rising. The same applies for lower circuit stocks today. Always check the reason behind the move.
   

• Do your Research: Company earnings, debt levels, and news flow matter. Circuits triggered without fundamentals may not last.
  
   
• Spot Opportunities Carefully: Sometimes a lower circuit in stock market can signal value if selling is excessive. An upper circuit in stock market may give a chance to book profits.

Conclusion

The upper circuit and lower circuit are essential tools for keeping markets stable. They cap the daily price fluctuation limit, act as a circuit breaker mechanism, protect investors, prevent manipulation, and support market volatility control under SEBI circuit limit rules.

For traders and investors, understanding these limits is key. They show when demand or supply is extreme, explain sudden trading halts in NSE/BSE, and highlight risks of being locked in a stock price freeze. Used correctly, they are not barriers but stock market safety measures designed to ensure fair trading and investor confidence.