What is a “Circuit Breaker” in the Stock Market?

A circuit breaker is a market-safety process that “temporarily halts or restricts” trading when a stock or market index moves beyond a predetermined limit during a trading session. 

The purpose is to give market participants time to assess the situation and prevent panic-driven buying or selling. 

As per general market understanding, there are two primary types of circuit breakers: Upper Circuit and Lower Circuit. 

Upper Circuit and Lower Circuit in NSE

An “upper circuit” is the maximum percentage or price limit by which a stock can rise during a trading session on the NSE. In comparison, a “lower circuit” is the maximum limit by which it can fall. For example, 

• Suppose a stock has a 10% circuit limit and its previous closing price was ₹100.
• Now, its upper circuit would be ₹110 and its lower circuit would be ₹90. 

These limits are set to control extreme price movements and give the market time to absorb significant buying or selling pressure. Once a stock reaches either limit, further trading may be restricted or halted. Note that the circuit limit can vary by security and market segment.

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