What is a Circuit Breaker? Upper and Lower Circuits in Indian Markets

A circuit breaker is a SEBI-mandated mechanism that temporarily halts trading in a stock or the entire market when prices move beyond a predefined limit in either direction. It is designed to prevent panic-driven crashes or artificial manipulation by providing a cooling-off period. For individual stocks, these limits are called 'upper circuit' (maximum gain allowed in a day) and 'lower circuit' (maximum loss allowed in a day).

How Stock-Level Circuits Work

Individual stocks in India have circuit limits of 2%, 5%, 10%, or 20%, depending on the stock category. When a stock hits its upper circuit, only buyers exist (no sellers), so trading stops. When it hits the lower circuit, only sellers exist (no buyers), so trading stops. You cannot execute a trade beyond these limits, making it impossible to buy at the upper circuit or sell at the lower circuit until the next session.

Index-Level Circuit Breakers

For the broader market, SEBI mandates index-level circuit breakers based on NIFTY 50 or SENSEX movement. A 10% fall triggers a 45-minute halt, a 15% fall triggers a 1 hour 45 minute halt, and a 20% fall leads to trading being suspended for the rest of the day. These were triggered during the COVID crash in March 2020, highlighting their importance as a systemic safeguard.

Key Points About Circuit Breakers

• Circuit limits for stocks: 2%, 5%, 10%, or 20% — depending on the stock's volatility category.
• A stock at the upper circuit has only buyers; lower circuit has only sellers.
• F&O stocks and index constituents typically have 20% circuit limits.
• Index-level halts: 10% fall = 45-min halt; 15% fall = 1h45m halt; 20% = day's trading suspended.
• Circuits are applied to both BSE and NSE simultaneously for the same stock.