Lower Circuit
The price floor beyond which a stock cannot fall in a single session — a mechanism that can trap long holders when panic selling peaks.
Definition
The lower circuit is the minimum price at which a stock is permitted to trade during a single NSE or BSE trading session. It forms the downside boundary of the circuit limit mechanism. When a stock's last traded price touches the lower circuit level, the exchange blocks all sell orders below that price, and the stock is described as "locked at lower circuit." The market can technically continue to trade at that price if buyers step in, but the overwhelming reality is that sellers vastly outnumber buyers, and the order book effectively stalls.
Why it matters
A lower circuit is among the most dangerous situations for a trader holding long positions — whether in shares, futures, or calls — because it creates an exit crisis. Sellers pile up at the circuit price but buyers are absent, so orders queue without filling. A trader with a long futures position faces mark-to-market (MTM) losses and margin calls with no ability to exit. Put buyers, paradoxically, may also struggle: even though their position profits from the fall, they cannot sell their puts because derivatives markets on that stock are also frozen.
For risk management purposes, lower circuits matter most in single-stock F&O. Nifty and Bank Nifty are index instruments and do not hit stock-style lower circuits, but individual stocks — even large-caps — can lock lower circuit on severe adverse news. Corporate governance failures, SEBI enforcement actions, unexpected earnings shocks, or promoter-stake pledging announcements have all historically sent stocks to lower circuit within minutes of opening.
SEBI has additional surveillance tools that interact with lower circuits. Stocks under the Additional Surveillance Measure (ASM) or Graded Surveillance Measure (GSM) framework can have their circuit bands tightened to 5% or even 2%, making lower circuit locks more frequent and recovery slower. Retail investors holding such stocks face amplified liquidity risk.
How it works
Lower circuit price = Previous Close × (1 − Circuit Band%). On each trading day the exchange publishes this floor price for every security. No sell order below this price is accepted. When the live price touches the floor and no buyers meet sellers at that level, the exchange shows a "lower circuit" status and order flow freezes. The stock reopens only at the next session's start, at which point a new lower circuit is calculated from the locked circuit price itself — meaning consecutive lower circuits can occur across multiple days.
Example
Suppose a listed NBFC stock closes at ₹300 on a given day. It carries a 20% circuit band, so the lower circuit for the next session is ₹240. The company announces a large NPA (non-performing asset) addition before market opens. At 9:15 AM IST the stock opens directly at ₹240 — the lower circuit price — with 80 lakh shares queued for sale and fewer than 2 lakh shares of buy orders. Trading technically exists at ₹240 but virtually nothing gets done. Futures holders scramble to find brokers who can call the exchange for a margin relief extension. If the stock locks circuit again the next day, the new lower circuit would be ₹240 × 0.80 = ₹192.
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