A price band, commonly called a circuit limit, is the maximum a stock may move in a single day. Once the price reaches the edge of the band, it cannot go further that day.
The purpose is to slow panic and give information time to spread, rather than letting a rumour or a fat-finger order destroy a price in seconds.
How the bands work
The band is calculated from the previous day's closing price. Typical bands are 2%, 5%, 10% or 20%, depending on the stock. Highly liquid stocks — particularly those with derivatives available — may instead operate under a dynamic price band mechanism that can be widened during the day under defined conditions.
A stock closed yesterday at ₹200 with a 10% band.
Upper circuit = ₹220. Lower circuit = ₹180.
Today the price may move anywhere between ₹180 and ₹220. No order outside that range is accepted at all.
The narrowest bands are applied to stocks the exchange considers most prone to manipulation — typically small, illiquid companies. A 2% band on a small-cap is a signal about the stock, not just a rule.
Hitting a circuit vs being locked in one
These are different, and the difference matters enormously.
Hitting the upper circuit means the price reached the day's maximum. Trading can continue at that price if sellers are willing.
Locked at the upper circuit means the price is at the maximum and there are only buyers, no sellers. Millions of shares are bid at ₹220 and nobody will sell. No trades happen. The price is frozen.
The same in reverse at the lower circuit: everyone wants out, nobody will buy, and the stock is frozen with a huge queue of unfilled sell orders.
Why a stock gets locked
Upper circuit: unexpectedly good results, a large order win, an acquisition, a regulatory approval, index inclusion — or, in small stocks, manipulation and hype.
Lower circuit: fraud allegations, an auditor resigning, a promoter pledge being invoked, a regulatory ban, disastrous results — or the unwinding of a stock that was pumped up.
Series of circuits
A stock can hit the same circuit day after day. Ten consecutive lower circuits at 5% takes a ₹100 stock to roughly ₹60, and a holder who could never exit watches the whole way down.
This is how the worst retail losses in Indian small-caps actually happen — not through a single dramatic crash, but through a sequence of locked lower circuits.
How to see the risk in advance
- Check the band. A 2% or 5% band means the exchange has flagged this stock as sensitive.
- Check liquidity. Thin stocks lock far more easily — it takes very little order flow.
- Check for surveillance measures. Exchanges place stocks under frameworks such as ASM (Additional Surveillance Measure) and GSM (Graded Surveillance Measure), which can impose higher margins, trade-for-trade settlement or periodic call auctions. A stock under these measures is being watched for a reason.
Index circuit breakers
Separately, market-wide circuit breakers halt all trading if a benchmark index moves 10%, 15% or 20% in a day. The length of the halt depends on the level breached and the time of day, and at the most extreme level trading stops for the remainder of the session. These are rare events, triggered by system-wide shocks rather than single-stock news.
Key takeaways
- A circuit limit caps how far a stock may move in one day, measured from the previous close.
- Hitting a circuit is fine; being locked in one with no counterparty means you cannot trade at all.
- A stop-loss cannot execute in a locked lower circuit — there are no buyers.
- Consecutive lower circuits can destroy a large part of your capital with no chance to exit.
- Check the price band and any ASM/GSM surveillance status before buying an unfamiliar small stock.
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