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Tag: upper circuit

  • Navigating the Indian Stock Market: Understanding Upper and Lower Circuits

    The Securities and Exchange Board of India (SEBI) is in charge of overseeing the operation of the Indian stock market and ensuring that all players engage in ethical and transparent behaviour. The stock market offers investors the chance to take part in the expansion of the economy while serving as a crucial tool for buying and selling assets.

    The upper and lower circuits are a crucial idea in Indian stock market. In order to prevent excessive stock price volatility and to maintain a fair and open market, SEBI has established these circuits.

    The upper circuit is the highest price over which a stock cannot advance on a particular day. On the other hand, the lower circuit is the lowest price below which a stock cannot fall on a certain day. These restrictions are meant to stabilise the market by reducing volatility and preventing manipulation of stock prices.

    For instance, if a stock is selling at Rs. 100 and its upper circuit limit is set at Rs. 120, the stock price is not permitted to increase over Rs. 120 on that day, regardless of market demand. The stock price cannot decrease below the lower circuit limit, which in this case is Rs. 80.

    These ceilings are set in accordance with the trading history of the stock, the state of the market, and the company’s financial standing, among other things. To keep them relevant and useful in reducing market volatility, the upper and lower circuits are periodically modified.

    Finally, it should be noted that the upper and lower circuits are crucial to preserving the stability and fairness of the Indian stock market. They provide a way to stop excessive stock price volatility and guarantee that everyone has an equal chance of success. When making investing selections, it’s critical for investors to be aware of the upper and lower circuits to make sure they are well-informed judgements.

    For penny stocks—stocks with a small market capitalization and low price—the upper and lower circuit limitations are especially crucial. The upper and lower circuits offer a means of regulating penny stock volatility and preventing manipulative tactics since penny stocks are recognised for their extreme volatility.

    A stock’s trading is suspended for the remainder of the day when it reaches the upper or lower circuit limit. This allows the market to process the news and stop future price fluctuations. The stock is once again traded the next day at a price set by supply and demand in the market.

    In reaction to the state of the market and other variables, SEBI may alter the upper and lower circuits. To avoid extreme price fluctuations, SEBI may alter the upper or lower circuit limit if, for instance, a business discloses a substantial development that is expected to have a large influence on its stock price.

    Along with limiting market volatility, the upper and lower circuits give SEBI a way to keep an eye on market activity and stop insider trading and other manipulative tactics. The SEBI utilises the circuit limitations to spot any anomalous trading activity and take the necessary steps to maintain a fair and open market.

    In conclusion, the upper and lower circuits play a significant role in the Indian stock market’s stability, fairness, and transparency. They give a way for SEBI to monitor and manage the market while also playing a crucial part in reducing market volatility, especially for penny stocks. The upper and lower circuits and how they affect your investing selections should be understood by investors.

  • What Are Upper And Lower Circuits In The Stock Market?

    We’ve all wished that we could choose a stock and get a return of 50%, 100%, or even 1,000% on the day we bought it. This may not be possible, though, because there may be limits to how far the price of a stock can go. In India, the Securities and Exchanges Board of India (SEBI) decides what the upper and lower circuits are.

    Here, we explain what upper and lower circuits are, how stocks can reach them, and what happens when they do.

    What is the upper circuit?

    The upper circuit is the highest point where the price of a stock above which it can’t go up in one day. Stocks that are in the upper circuit have a lot of buyers but zero sellers. The closing price from the day before is used to figure out upper circuits.

    Some stocks may have upper circuits that are 2% above the price at which they closed the day before. Other stocks can have upper circuits that are 5%, 10%, or 20% above where they closed the previous day.

    The price of a stock can’t rise more than its upper circuit in a single trading session. But if some people start to sell, the prices can go down.

    What is the lower circuit?

    The lower circuit is the point where the price of a stock or the value of an index could drop the most. Stocks that a lot of people want to sell but not many people want to buy may drop in price.

    Lower circuits are also calculated using the stock’s closing price from the day before, though they may be different for each stock.

    For some stocks, the lower circuit could be 2% lower than the last closing price. For other companies, it could be 5%, 10%, 15%, or 20% lower.

    A company’s price may not fall below its lower circuit in a single trading session, but if investors start buying the stock, the price may go up.

    What makes stocks trade in higher or lower circuits?

    Let’s look at some examples of stocks that have touched the upper or lower circuit to learn more about why this might happen.

    When a stock hits its upper circuit, it has:

    Imagine that a new pharma company unexpectedly beats the market leader in terms of market share. This would cause a lot of people to want to buy this stock at once.

    The people who own shares in such a company are not likely to sell them. But people who want to buy these stocks may offer more money for them. Upper circuits can protect investors from volatility and unwarranted speculation, like the pump-and-dump operation.

    When a stock is in the lower circuit

    Let’s say you heard that a certain business was doing business in a way that wasn’t right. The government is likely to take harsh action against this company. The shares of this company are no longer worth much. Since no one would want to buy, the people who already own shares won’t be able to sell them.

    If no one buys a stock, its price might go down. The stock price might keep going down because investors don’t want to buy stocks that are already going down. So that this doesn’t happen, lower circuits are set up.

    So, in theory, a stock could reach its circuit limits if something happened that changed how desirable the stock was. For a stock to move to the upper or lower circuit, there must be a big change in how people feel about it. Sometimes, when the market is manipulated, stocks hit their upper or lower circuits.