Circuit Limit
A SEBI-mandated price ceiling and floor that automatically halts trading when a stock or index moves too far, too fast.
Definition
A circuit limit (also called a circuit breaker or price band) is a regulatory mechanism mandated by SEBI that sets the maximum permissible price movement — both upward and downward — for a security within a single trading session. Once the price of a stock or derivative touches the upper circuit or lower circuit, trading in that instrument is suspended until the exchange intervenes or reopens it. The mechanism exists to prevent panic-driven crashes and artificial price manipulation from running unchecked.
Why it matters
Circuit limits affect F&O traders in ways that are often underappreciated. When a stock hits its circuit, all pending orders — including those in options and futures on that stock — get frozen. You cannot exit an options position in a stock that has locked circuit, which can leave you trapped with unlimited risk on a naked short or unable to book profits on a long. This is a meaningful operational risk that distinguishes stock F&O from index F&O: Nifty and Bank Nifty do not have individual stock-style circuit limits but are subject to market-wide index circuit breakers.
SEBI applies different circuit bands to different categories of securities. Stocks in the F&O segment typically have a 20% daily price band, while smaller, more volatile stocks can have tighter bands of 5% or 10% depending on their categorisation and recent volatility history. Securities under surveillance or in the trade-to-trade segment may have even narrower bands or be subject to special margin requirements.
At the index level, NSE and BSE apply a three-tier market-wide circuit breaker based on the Nifty 50 or Sensex: a 10% move triggers a 15-minute trading halt (after 2:30 PM IST, no halt), a 15% move triggers a 45-minute halt (after 1:00 PM, 15 minutes; after 2:30 PM, no halt), and a 20% breach suspends trading for the rest of the day on both exchanges simultaneously.
How it works
Circuit limits are calculated as a percentage of the previous day's closing price (or the base price set by the exchange at the start of the session). Each morning, the exchange publishes the exact upper and lower circuit prices for all securities. Orders placed outside these bands are rejected outright by the order management system before they ever reach the matching engine. When the last traded price touches the band, a market halt is triggered automatically without any human intervention at the trading terminal level.
Example
Suppose a mid-cap stock closes at ₹200 on Monday. NSE assigns it a 10% circuit band. On Tuesday, its upper circuit limit is ₹220 and its lower circuit limit is ₹180. Say positive news breaks before open and buyers aggressively push the stock to ₹220 in the first 20 minutes. Trading is immediately suspended. Any trader holding a short futures position in this stock cannot square off; any put buyer cannot sell their puts — they are locked in until the exchange announces a resolution, which typically involves calling for a fresh order book in the next session.
Monitor live circuit events
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