Understanding How To Exit From Lower Circuit Stock: Every investor’s dream is to have their investments/positions double overnight.
On the other hand, it is also their biggest nightmare if they just so happen to fall by 50% in a single day. We can only imagine what would happen to the entire market if this happened on a daily basis – Pure Chaos.
Market regulators like SEBI have seen this happen in the past when traders and institutional investors operated on a grey line.
Additionally, retail investors cannot mitigate losses on time if the market is so volatile. This is why the concept of a circuit breaker was introduced.
In this blog, we’ll give a brief introduction to circuit breakers and answer the important question – How To Exit From Lower Circuit Stock?
Understanding Circuit Breakers
As per NSE, market-wide circuit breakers were implemented as early as 2001. These circuit breakers apply at 3 different stages of the Index movement – 10%, 15%, and 20%.
When the indices trigger the breaker, they effectively halt equity and equity-derivative trading in all markets nationwide.
The breaker is triggered by the movement of either SENSEX or NIFTY 50, whichever breaches first. The table below shows the duration of the market halt and pre-open session after the market halt –
|Trigger Limit||Trigger Time||Market Halt Duration||Pre-Open Call Auction Session Post Market Halt|
|Before 1:00 pm||45 Minutes||15 Minutes|
|10%||At 1:00 pm or after up to 2:30 pm||15 Minutes||15 Minutes|
|On or after 2.30 pm||No Halt||N/A|
|Before 1:00 pm||1 Hour 45 Minutes||15 Minutes|
|15%||At 1:00 pm or after up to 2:00 pm||45 Minutes||15 Minutes|
|On or after 2:00 pm||Remainder Of The Day||N/A|
|20%||Any Time During Market Hours||Remainder Of The Day||N/A|
The basic understanding of the upper circuit is this – When a stock hits the upper circuit price, it will only have buyers and no sellers. As there are no sellers, you will not be able to buy the stock as its price skyrockets.
Now the lower circuit is the opposite of the upper circuit. The stock will only have sellers and no buyers. This means you won’t be able to sell the shares that you have bought as long as it sits in the lower circuit.
How To Exit From Lower Circuit Stock
As an investor, picking the right company is very important. Along with that, you should also learn about the markets and how they function.
Irrespective of being a long-term investor or a beginner, it is advisable to exit your position. This is because exposure to the stock can cause huge losses.
The way to do it is by placing an order during the pre-open session. This means you must place a sell order pre-market at 9 a.m.
The reason for placing an order so early is that the market works on a first come first serve basis, especially during a circuit break. Since the stock has already hit the lower circuit, it is in your best interest to exit as soon as possible.
On a daily basis, stocks hit the circuit breakers (Both upper and lower circuits). This is due to volatility in the market. Specific breakers are assigned to check and control random fluctuations.
Having a lower circuit stock is obviously bad news, and it sometimes can’t be avoided. But you can exit your position/holding quickly to avoid more losses holding the stock.
Volatility occurs with even the best stocks in the market. That’s why you must always – Do Your Own Research! As always, Happy Investing.
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