Can Upper Circuit Change In A day: Despite the known fact that equities generate an inflation-proof return, there are individuals who think twice before investing their money in the stock market.
The principal reason for their worry is the volatile nature of the share market. Volatility means upward and downward movement of the prices.
The higher the prices fluctuate, the more volatile the stock market is, and vice versa. Simply put, a higher level of volatility refers to a situation when prices change dramatically in a short time period in either direction.
Therefore, investors or traders can benefit from a trading environment that is volatile only when he/she is willing to navigate all twists and turns, or can stay invested for the long term.
Due to this volatility, the Indian markets have implemented circuit breakers. These breakers set the upper and lower limit of the volatility of stocks.
In this blog, we’re going to answer a question regarding the upper circuit i.e., “Can upper circuit change in a day?” so read ahead to find out!
How To Protect Investors? – Circuit Breakers
Regulatory bodies have made sure that investors are not burdened by mounting losses. As a result, they have introduced several mechanisms and rules which focus on limiting the investors’ losses.
One such measure is the introduction of circuit breakers (i.e. upper circuit and lower circuit). In markets, circuit filters are of 2 types – one is at the stock level and the second one is market-wide.
Today’s article will focus on stock-level circuit filters. When stock fluctuates sharply in either direction or it touches its maximum permissible tradeable price level for one day, it is considered that the stock has hit the circuit.
When there is upward movement, it is said to have hit the upper circuit, whereas when there is a downward movement, the stock hits the lower circuit.
Role Of Circuit Filters
Before answering the question, can upper circuit change in a day, it is important to understand the role of circuit filters.
Circuit filters are put in place to ensure that there is no extreme movement in prices and to protect the investors’ capital.
For index, 10%, 15%, or 20% are considered as the circuit breaker triggers. In India, such circuit limits are decided and set by the Securities and Exchanges Board of India (SEBI).
Circuit filters help regulate the fluctuation of prices in a day and these filters act as market curbs on days of panic selling or huge buying. To some extent, such circuit filters help curb price manipulation by stock operators.
While these filters are set by the market regulator, these filters are revised on the basis of volatility in the market or any sort of unusual activity in certain counters.
More often than not, circuit filters are revised periodically depending on the market liquidity. These filters are hiked for stocks having good liquidity, while these are lowered for illiquid stocks.
Therefore, periodic adjustments are required to protect the interest of investors in lesser-known stocks.
Imagine that an automotive company launches a new vehicle. That vehicle is seeing huge demand. Obviously, the stock price of that company will go through the roof.
This is because people will buy the stock and like to hold on to it. However, if the information is incorrect, it can be misleading or it might happen that this piece of information does not reach all the market participants at the same time.
Therefore, circuits help in such a situation to set the maximum and minimum price levels to which a particular stock can move in a day.
Upper Circuit – What Is It?
In an uptrend, the upper circuit in the share market is referred to as the maximum level to which it can increase in a day.
After a particular stock touches the upper circuit, it means that it has only the buyers available and no sellers are there for the script.
The upper circuit limit can be set to 20%, 10%, or 5%. This is set on the previous day’s closing price and depends upon the stock exchange’s criteria for a particular stock.
For example, the first time a stock reaches the upper circuit, an exchange might apply a circuit limit of 20% on the closing price of the previous day.
However, if the stock continues to hit its upper circuit, the exchange may decide to lower the circuit to 10% or 5% to limit excessive trading activity. Lower circuit limits are also defined in the same way.
Individuals should know that when a stock hits the upper circuit, it cannot move any higher on that particular day. However, it can move lower if there is a fresh supply of shares in the stock market.
Importantly, stocks that are traded in the derivatives segment don’t have any circuit limits. Now let’s try to answer the question regarding upper circuits.
Can Upper Circuit Change In A Day?
Simply put, once the stock touches the upper circuit, trading in that stock stops. Now, the time for which the stock market halts depends upon the upper limit (i.e., whether it is 10%, 15%, or 20%).
The maximum duration for which a trading session is paused is for the whole day. However, this is not always the case. Can upper circuit change in a day?
The answer is yes (in the case of NSE). The upper circuit can be changed in a day but AFTER THE TRADING HOURS. On NSE, circuit limits are updated on the same day but after the closure of the market (i.e., ~5:00 PM).
On BSE, circuit limits are updated the next day at 6:45 AM (i.e., before the opening of the markets). On the basis of trigger limits, trading is halted respectively.
Can Upper Circuit Change Within Trading Hours?
Stocks tend to hit the upper circuit when there are only buyers and no one is selling the stock. There are stocks on whom upper circuits are hit when it moves 2% higher than the previous day’s closing price.
However, it is of utmost importance to note that prices might fall if some people decide to start selling. As a result, trading resumes in that particular stock.
However, if buying pressure is revived in that stock, it will again hit the upper circuit at the same level. Thus, trading will again be halted. Therefore, the upper circuit cannot be changed during trading hours.
Circuit limits that are set by the market regulator are in the best interests of investors or traders. The idea behind such limits is to protect investors from undue speculation and volatility.
Ideally, only when there is some change in the desirability of a particular stock, its price may hit the lower circuit and upper circuit.
However, in some cases, market manipulators tend to influence stock demand and supply. Investors and traders are required to know that the trades should not be solely based on stocks or indexes hitting upper or lower circuits.
That’s all for the article Can Upper Circuit Change In A day, We hope you enjoyed reading it. Happy Investing!
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