What is Upper circuit.

What is Upper circuit.

What is Upper circuit?

We often heard that trading is halted for a specific time in a specific stock.
The price action graph shows a horizontal straight line, no upward movement no downward movement, do you ever wondered why it happened?.
We all agree that the Stock market is a tool for creating wealth, it will appreciate investors’ money over time, but! not in one day.
Sometimes the stock market is very volatile, prices of any particular stocks increased drastically within a day or prices go drastically low as well within a day.
It will affect investors’ wealth, mentality as well as the stock markets reputation.
Sometimes a lot of stock market scams pump the stock prices of any particular stock drastically,
due to hype and greed more and more investors start investing in that stock, which pumps prices more aggressively, and when this scam opens to the public, then prices fall beyond investors imagination, to stop this destruction of wealth Circuits were invented.

To avoid this drastic rise and fall in stock prices SEBI (Securities and Exchange Board of India) has introduced Circuits.
Circuits put limits on prices of the stock,The main aim of the circuits is to control daily stock market fluctuations.

In the following article, we are discussing.

  • What is an Upper circuit?
  • how the upper circuit works.
  • Duration of Halt.
  • Advantages of the upper circuit, etc.
What is an Upper circuit

What is an Upper circuit?

The upper circuit is a Maximum limit in which a Stock Can Move on a Daily Basis.
When the stock hits the upper circuit, the trading stops for a specific time on that particular stock.
On that time period, no buyers able to buy that stock.

Example ;
Supposed the stock has an upper limit of 10%, now let’s assume that single share prices closed at Rs 500 on the previous day,
so on the next day prices of that stock can move up to 10% of 500 that is 550, so when the stock hits 550 price mark,
then all trading on that stocks are stoped for a specific time.

How Upper circuit works.

We know that the upper circuit is a maximum price point beyond which stock price does not increase in a day.
Also, an upper circuit is a scenario usually called “only buyers and No sellers“,
where investors only want to buy that stock and no investors want to sell that stock, Bullish trend will be started to build on that stock.
To counter this basically to control this unexpected fluctuation, Upper circuits were introduced.
In the Upper circuit scenario no one able to buy that share only sellers able to sell that share, basically No buying, only selling, started on that stock.
Circuit filters is a range applied to stock market indices, these circuit filters are applied at 20%, 15%, and 10% on the indices.
As circuit breakers are triggered, SEBI halts the trading in all the segments.

Duration of Halt.

  • When a Price of the indices falls or rises 10% before 1 pm, trading is halted for 45 minutes, If there’s 10% movement between 1 pm and 2:30 pm, there is a trading halt of 15 mins and no halt in case it happens after 2:30 pm.
  • If there’s a movement of 15% before 1 pm, trading is halted for one hour 45 minutes and for 45 minutes in case of a rise or fall between 1 pm and 2:00. When there’s 15% movement after 2:00 pm, trading is halted for the remainder of the day.
  • Unlike the first and second stages, if a benchmark index witnessed a 20% movement at any time of the day, trading is halted for the remainder of the day.

investors can see the stocks with the upper circuit in trusted websites like Moneycontrol.
also, the exchange upon doubts of suspicious activity in-stock can apply filter percentage according to its wish.

Advantages of Upper circuit.

  1. it controls the daily fluctuations of the stock market.
  2. with circuits, investors do not lose the majority of their wealth in a single day.
  3. circuits help to reduce volatility in the stock market.
  4. with the integration of circuits, investing in the stock market becomes less risky.
  5. Circuits on some scale protect investors’ sentiments and emotions by reducing risk.
  6. circuits reduce the effectiveness of stock market scams until, those scams open to the public.

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