What are circuit limits or price bands?
What are circuit limits or price bands? Find a clear answer in this FAQ by 021 Trade.
Circuit limits, also known as price bands, are safety measures imposed by stock exchanges to maintain orderly trading and prevent excessive volatility.
They define the maximum range within which a stock or contract (such as Equity and F&O) can move during a trading day. These limits are generally set between 2% to 20%, depending on factors like liquidity, trading volume, and the category of the stock.
When the price of a stock reaches its upper or lower circuit limit, trading cannot proceed beyond that level. Any orders placed at the circuit price will remain pending until the price moves back within the permitted range.
Orders placed outside the price band are automatically rejected. Additionally, if a stock hits a circuit limit, all unmatched orders remain pending until the exchange relaxes the limits or trading resumes within range.
You can check the upper and lower circuit levels in the market depth section of your trading platform.
In summary:
Circuit limits help control risk, reduce volatility, and ensure fair and transparent trading in the market.
