What is a circuit in the stock market?
Friends, India’s stock market has collapsed right now. It is increasing day by day. Wherever we look The stock market is the talk of the town. Millions of people buy and sell in the stock market. If there is good or bad news from any company then people start buying or selling the shares of that company. In today’s article we are going to talk about the stock market.
What is Jargon?
Jargon means words related to any one field which is used professionally. There are different Jargon from different fields. Similarly there are some common jargons in the stock market. Such as Bull Market (Bullish), Bear Market (Bearish), Trend ,Face value of a stock, 52 week high/low, All-time high/low, Upper Circuit/Lower Circuit, Long Position, Short Position, Square off, Intraday position, OHLC – OHLC, Volume, Market Segment. From all this we will learn about Upper Circuit and Lower Circuit.
What is a circuit?
We often see that sometimes the trading of a stock is stopped. Sometimes we can’t do trading. Some shares are put on hold. And there’s something about the circuit. Circuit means to keep this stock upright. This stock cannot be traded further. The circuit is already set. For example, if the share price increases or decreases by such a percentage, the circuit is closed. Also known as circuit breaker. Which reduces the volatility of the share price in the stock market.
What happens when a circuit hits?
So let us know what kind of circuits there are. First we will talk about index funds. Such as BSE SENSEX, NIFTY 50, BANK NIFTY. At the time of Covid-19, when the lockdown took place, the circuit on the Sensex started long after. Whenever any index funds cross the circuit, all market shares are closed. So no one can trade.
What is upper circuit and lower circuit? and When to apply?
Our country has two big stock exchanges BSE and NSE. Which determines when the circuit will start on which stock. And the percentage of increase or decrease in the circuit is also determined by BSE and NSE. If the share price goes up, the upper circuit will be felt and if it goes down, the lower circuit will be felt.
If you want to see this list, you can see it on BSE website. In which it is stated what percentage of the circuit will be on which stock. If you look in NSE(National Stock Exchange of India Ltd), there are about 180 such stocks. There is no circuit limit in this stock. These 180 share can go up to 50% in a single day and can go down to 50%.
The remaining shares seem to have a 10% cross circuit. This means that if the price goes up by 10% then the trade is closed for 15 minutes. After these 15 minutes, the exchange sets a new limit. Circuit limit of stock in India is 2%, 5%, 10%, and 20%. This limit is determined by the stock exchange.
Who is set limit of upper circuit and lower circuit?
This circuit limit exchange can change any number of times in a day. Ex. If a stock has a circuit limit of 2%, the price of the stock can go up or down by 5% in one day. And this limit is set at yesterday’s price. According to yesterday’s price, it may go up or down by 5%. Anyone can trend between Upper Circuit and Lower Circuit in one day. The range between these is known as the Price Band.
Sometimes it also happens that the circuit limit starts to go up with the opening of the market. The stock is closed for the full day. It also often happens that the exchange circuit limit is increased on the same day as the stock cross circuit limit. And it starts trading again on the stock.
Derivatives stock has no circuit limit. The price of such stock rises or falls in any one day. And the trading of this stock is not even closed. That is why when trading, one should be careful whether it is a stock derivative or not.