🔄 What are Circuit Limits in the Stock Market? In the stock market, prices of stocks or even the whole market can rise or fall sharply within minutes. To control extreme volatility and protect investors from sudden heavy losses or gains, stock exchanges apply something called Circuit Limits or Price Bands. 🔍 Definition: Circuit Limit (also known as Price Band or Circuit Filter) is the maximum limit by which a stock price can move up or down during a trading day. 👉 This prevents a stock from rising or falling beyond a certain percentage in a day, ensuring market stability. 🎯 Purpose of Circuit Limits: ✔️ To prevent panic buying or selling ✔️ To avoid manipulation by big traders ✔️ To give time for investors to think before reacting ✔️ To reduce sudden, sharp price movements 📌 How Circuit Limits Work? Let’s take an example: Imagine a company called Gamma Ltd.. ✔️ Current Market Price: ₹100 ✔️ Circuit Limit: ±5% So, in this case: ➡️ Upper Circuit = ₹105 ➡️ Lower Circuit = ₹95 This means the stock price cannot go above ₹105 or below ₹95 on that day. If many buyers try to buy at ₹105 and no one sells, the stock gets "stuck in the Upper Circuit". Similarly, if everyone sells and no one wants to buy at ₹95, the stock hits the "Lower Circuit". 🔔 Types of Circuit Limits in India: ✔️ Individual Stock Circuits: Different stocks have limits like 2%, 5%, 10%, 20% based on their volatility and market size. ✔️ Index Circuits (Market-wide): For example, if Nifty or Sensex moves beyond 10%, 15%, or 20%, trading halts for some time or the entire day depending on the movement. ⏰ What Happens When Circuit Limits are Hit? 1️⃣ Upper Circuit: ✅ No seller available ✅ Price can't go up more ✅ Only sell orders accepted — but no buyer to take it 2️⃣ Lower Circuit: ✅ No buyer available ✅ Price can't go down more ✅ Only buy orders accepted — but no seller to offer it 🎨 Simple Example: ✔️ You are holding Delta Ltd. at ₹200. ✔️ The exchange sets a 10% circuit limit. ✔️ Upper Circuit = ₹220 ✔️ Lower Circuit = ₹180 No matter how high or low traders want to take the price, it cannot move beyond ₹180–₹220 for the day. 🌟 Why Are Circuit Limits Important? ✅ Stops extreme fear or greed in the market. ✅ Gives time to investors to understand the news or event affecting the stock. ✅ Protects retail investors from big players who might manipulate stock prices. ⚠️ Limitations of Circuit Limits: ❌ If a stock keeps hitting upper or lower circuits for many days, normal trading gets disturbed. ❌ Liquidity problem: Investors may not be able to sell or buy because of no opposite party available. ❌ Artificial price freezing — the real price discovery may get delayed. 🏁 Final Thoughts: Circuit Limits are like speed breakers on a road — they slow down sudden movements, keep things in control, and avoid accidents. For new investors, always check: ✔️ Whether the stock you’re buying often hits circuits. ✔️ Why is the circuit being hit (good or bad news)? ✔️ Does it affect your investment decision? ✨ Key Takeaways: 🔹 Circuit Limits = Daily price range protection 🔹 Avoid panic moves in the market 🔹 Stocks and entire market both have limits 🔹 Helps protect investors from sudden risks 🚦 What is a Circuit Breaker in Stock Market? 🔍 Meaning: A Circuit Breaker is like a speed breaker on a road — but for the stock market. When the market rises or falls too fast (beyond a safe limit), trading is automatically stopped for some time to control panic and protect investors. 🎯 Why Circuit Breaker is Needed? Imagine you are driving on a highway 🚗 and suddenly the road goes downhill steeply! What do you want at that moment? 👉 A speed breaker or brake, right? Similarly — If the stock market is falling very fast ⬇ (say -10% in 1 hour), the exchange hits a Circuit Breaker 🚦 — stops trading for some time. This allows: ✔️ Traders to calm down ✔️ Panic to reduce ✔️ Big losses to be avoided 🔥 When Circuit Breaker Happens? Example: If the market moves by: 5% — Short halt 10% — Longer halt 15% — Market may shut for the day! These percentages are called "circuit limits" (set by SEBI in India). 🌿 Stay Calm. Trade Smart. Stay Informed. 🌿