Upper circuit and lower circuit full explanations in easy way

Hello investors, welcome to our website today we are going to talk about upper circuit and lower circuit. What is upper circuit and lower circuit. When the demand for a share becomes high, then the upper circuit is engaged and when the selling of a stock starts all of a sudden, then the lower circuit is engaged.
But I still do not understand what is this upper circuit and lower circuit upper circuit and lower circuit?

What is upper circuit and when does it happen?

For example, suppose you have bought a share in your X-name and there is some good news about that stock in the market, then the demand for that share will suddenly increase and more and more investors will start buying that share. Due to the increase in the demand for more shares, the upper circuit is installed.

What is lower circuit and when does it happen?

For example, suppose you have bought a share in your Z-name and there is some bad news of that stock in the market, then suddenly the selling of that stock will start and more and more investors will start selling that share. A lower circuit is put in place to prevent overselling of the stock.

Stocks have upper and lower circuits.

The stock exchanges put up a price band every day, depending on the stock’s last traded price, to safeguard investors from a severe single-day reactionary share price decrease or boost. The upper circuit represents the stock’s highest conceivable price on that specific day. The bottom circuit, as you might expect, is the lowest the stock price can go on that particular day.

The employment of upper/lower circuits in the stock market is solely for the benefit of investors.

The limit could be established at a level determined by the stock market, expressed as a percentage. It could be anywhere from 2% to 20% of the total.

how to calculate upper and lower circuit of a stock

When upper circuit and lower circuit is installed in any company, it is never more than 5%. Now you must have known that why the upper circuit and lower circuit are installed, but now we know how the upper circuit and lower circuit is calculated?

For example I have a share of paras defense whose price is 2000 rupees now if any circuit is put on this stock then it will not cost more than 5%.

Let’s say I have a share of paras defense whose price is 2000 rupees, if upper circuit is used in this stock then its price will not increase by more than 5%. 5% of 2000 is 100, then its share price will be Rs 2100, if upper circuit is used on the next day also then its share price will be Rs 2205.

And if there is a lower circuit in this stock, then the share price will fall by 5%. From Rs 2000, the share price will become Rs 1900 and the next day also if lower circuit is used, then the share price will be Rs 1805.

calculation – 2000 x 5% = 100 , 2000-100 = 1900
1900 x 5% = 95 , 1900 – 95 = 1805

latest upper circuit stocks

  • Reliance Capital
  • Indian bright steel co.
  • Surana Solar
  • Tata Telecom services
  • Reliance power
  • JP Power ventures

circuit filters in markets

There are two sorts of circuit filters in markets: one at the stock level and the other at the market level. We’ll concentrate on stock-level circuit filters in this tutorial.

A stock is considered to have struck the circuit when it moves sharply in either direction – up or down – or exceeds its maximum authorised tradeable price level for the day. The stock hits the Upper Circuit on an upward movement, and the Lower Circuit on a downward movement.

That brings us to the following point: why do we need circuit filters?

Circuit filters’ function

Circuit filters control daily price fluctuations.
On days of euphoric or panic selling, they operate as market restraints.

They serve to limit price manipulation by stock operators to some extent.

What are the different daily restrictions?

On any given trading day, a stock can fluctuate up to 5%, 10%, or 20% on each side, depending on its category.

However, the maximum allowed limit for equities is determined using the previous day’s closing price on exchanges.

Here’s something you should be aware of. A stock that has reached the upper circuit cannot go much higher on that day, but it can go lower if new supply arrives at a cheaper price than the circuit filter price. Similarly, if a stock reaches the lower circuit, it cannot fall any more, but it is possible to buy at the lower circuit since there will be plenty of sellers.

What causes stocks to form circuits?

A single stock may enter the market for a variety of reasons.

For example, in the event of favourable news flow, there may be strong demand for a company’s stock, causing the stock to rise to the upper circuit. In the event of negative news flow, the situation might also be reversed.

Upper Circuit: Demand for shares is greater than supply.
Lower Circuit: Share supply exceeds demand.

Who makes the decisions for circuit filters?

Market regulator Securities Exchange Board of India, or SEBI, sets the circuit filters, which are updated based on market volatility or unusual behaviour on specific counters.
Apart from that, the circuit filters are updated on a regular basis based on market liquidity.

For stocks with high liquidity, circuit filters are increased.

For illiquid equities, circuit filters are decreased.

Indices’ upper and lower circuits

Circuits can be constructed not only for individual stocks, but also for an index. When an indicator dips or climbs by 10%, 15%, or 20%, the circuit breaker mechanism raises a red flag. Trading in India’s equities markets, as well as the derivatives markets, is paused when this happens.

The pause could be for a few minutes or the entire trading day. It is dependent on the percentage change in the index.

10% increase or decrease

Nothing truly happens if an index increases or falls by 10% after 2.30 p.m. This is most likely due to the fact that volatility is often higher near the conclusion of the trading day.

A 10% increase or decrease in price between 1:00 and 2.30 p.m. triggers a 15-minute trading halt.

If it climbs or falls by 10% before 1 p.m., however, a 45-minute trading halt is triggered.

15% increase or decrease

Trading activity is halted for the remainder of the trading day if the index rises or falls by 15% after 2.30 p.m.

If an index increases or falls by 15% between 1:00 and 2:30 p.m., trading is halted for the remainder of the day.

If it rises or falls by 15% before 1:00 p.m., trading activity is halted for 1 hour 45 minutes.

20% increase or decrease

If an index rises or falls by 20% during the day, trading is suspended for the day.

Here are five key facts about the upper and lower circuits.

  1. The prior day’s closing price is used to apply circuit filters.
  2. The circuit filters can be found on the stock exchange’s website.
  3. The majority of stocks begin with a 20% circuit.
  4. When a stock reaches its upper circuit, there will be no selling and only buyers; conversely, when a stock reaches its lower circuit, there will be only sellers and no buyers.
  1. Intraday trades are converted to delivery in such instances.

How to take advantage of stock circuits or price bands

If you’re a beginner trader, stay away from stocks that hit their circuits regularly or have frequently revised circuits – this is a clear evidence that the exchange is concerned about trading activity linked to these stocks, and thus a red flag for you.

If you’ve already invested in a company, it’s advisable to sell when you see the circuit approaching 5% or lower. Minimal earnings potential is often associated with low volatility.

Leave a Reply

Your email address will not be published.