The Indian stock market, like many other global markets, is structured with certain safety measures to check excess volatility. One such important measure is the circuit breaker.
A circuit breaker means halt in trading for a temporary period of time imposed upon a stock, index, or the whole market in cases where their price crosses pre-specified limits. These limits are set as percentage price changes(days containing upward or downward movements) in a single trading session. Circuit breakers are thus triggered in cases of panic selling or irrational buying to protect investors from sudden losses.
LCL and UPL: What Do They Mean?
- LCL (Lower Circuit Limit): The maximum percentage a stock can fall in a day. If the price hits this limit, trading is either halted or shifted to a cooling-off period.
- UPL (Upper Circuit Limit): The maximum percentage a stock can rise in a day. This helps control excessive speculative buying.
LCL – Lower Circuit Limit
The Lower Circuit Limit is referred to as the maximum allowable drop in the price of a stock or index throughout a trading session. When the price of a stock reaches this limit, either trading is suspended, or it may be temporarily halted in order to allow for a cooling period in the market or for reassessment.
Example:
If a stock opens at ₹200 and has an LCL of 10%, then it cannot trade below ₹180 through the course of that trading session. Should it touch ₹180, it will be considered a lower circuit, and trading might be stopped.
UPL – Upper Circuit Limit
The Upper Circuit Limit is basically the maximum upward movement in the price of a stock in a trading day. Thus, it prevents excessive speculative purchases by speculating to inflate the stock price.
Example:
If the same stock at ₹200 has a 10% UPL, the price cannot go above ₹220. If it touches ₹220, the stock hits the upper circuit, and trading is halted or restricted.
These limits are dynamically managed by SEBI (Securities and Exchange Board of India) and are enforced by the exchanges — NSE and BSE.
Circuit Limit Categories in India
The circuit limit for a stock or index is set based on its volatility and liquidity profile. Here are the standard levels:
| Category | Price Movement Limit (±) |
| High risk | 5% |
| Medium risk | 10% |
| Moderate risk | 15% |
| Others | 20%, 25%, or 30% |
Example:
If a stock has a 10% circuit limit and closes at ₹100 the previous day:
- UPL (Upper Price Limit) = ₹110
- LCL (Lower Price Limit) = ₹90
No trades can take place beyond these limits on that day.
How Are These Limits Calculated?
Circuit breakers are calculated based on the previous closing price of the security.
How is LCL Calculated?
The LCL is calculated based on the previous day’s closing price of the stock or index.
📊 Formula:
LCL Price = Previous Close – (Previous Close × LCL %)
🔎 Example:
A stock closes at ₹100. If it is under the 10% circuit filter:
- LCL = ₹100 – (₹100 × 10%) = ₹90
- If the stock falls to ₹90, it hits the lower circuit, and trading is halted or restricted.
How is UPL Calculated?
Just like LCL, UPL is also calculated based on the previous day’s closing price.
📊 Formula:
UPL Price = Previous Close + (Previous Close × UPL %)
🔎 Example:
A stock closed at ₹500 yesterday. If it’s in the 10% category:
- UPL = ₹500 + (₹500 × 10%) = ₹550
- The stock cannot rise above ₹550 for that day.
Index Circuit Breakers (NIFTY, SENSEX)
For benchmark indices like NIFTY 50 and SENSEX, the circuit breakers are standardized at 10%, 15%, and 20%.
Trading Halt Duration (Index-Based)
| Movement | Time of Trigger | Trading Halt Duration |
| 10% | Before 1 PM | 45 minutes |
| 10% | 1 PM – 2:30 PM | 15 minutes |
| 10% | After 2:30 PM | No halt |
| 15% | Any time | 1 hour 45 mins |
| 20% | Any time | Rest of the day |
Example:
If NIFTY falls 10% at 12:30 PM, the entire market halts for 45 minutes.
If NIFTY crashes 15% at 11:00 AM, markets pause for 1 hour 45 minutes.
Who Decides These Circuit Limits?
The circuit limits are decided by:
- SEBI (Securities and Exchange Board of India) – the regulatory authority
- Exchanges (NSE & BSE) – enforce and update them
- The limits are revised from time to time depending on market behavior, stock volatility, and investor participation.
What Instruments Do Circuit Breakers Apply To?
| Instrument Type | Circuit Limits Apply? |
| Stocks | ✅ Yes |
| Futures | ✅ Yes |
| Options | ⚠️ Not directly, but underlying movement affects them |
| Indices | ✅ Yes |
Options are indirectly affected — since their price is based on the underlying, a halt in the stock/index will pause option trading too.
Why Are Circuit Breakers Important?
- Prevent market crash due to panic selling
- Provide a certain amount of time for investors and traders to digest information
- Maintain fairness and orderliness in market
- Shield retail investors from serious price shocks
What are the advantages of circuit breakers in the stock market?
Circuit breakers in stock markets offer a range of advantages to the investor:
Panic is reduced: Since the trading is temporarily put on hold by the circuit breaker, investors can take their time to digest some market news and make cool-headed decisions, which go into rationale instead of impulsive or emotion-driven ones.
Decision-making becomes more informed: Investors are provided a short window to evaluate market performance, news updates, and corporate announcements before opting for rational decisions.
Market stability issues are minimized: Circuit breakers safeguard some degree of stability with forced periods of extreme volatility so that price changes do not occur in a sudden and extreme manner within a relatively short time.
What are the disadvantages of circuit breakers?
Increased Panic: In an ironic manner, such a feature can create panic sometimes. When a sudden halt happens, investors would feel they might lose the opportunity to sell or to buy.
Artificial Price Volatility: Circuit breakers, albeit maintaining a certain level of price stability, may disrupt the natural price mechanism creating artificial volatility. Artificial volatility translates to inefficiency of the market since orders may tend to pile up at circuit limits.
Liquidity Reduction: Halts may potentially affect liquidity as investors cannot trade within suspension periods with possible repercussions on market functioning.
When have circuit breakers been triggered in India?
Circuit breakers in India have been triggered times over, especially during market volatility and significant events. Here’s an account on some of the notable instances:
1. March 2020 (Pandemic & Real Market Crisis): Global markets crash during the initial onslaught of COVID-19, followed closely by Indian markets. On March 13, 2020, the Sensex got lower circuit by 10%, resulting in the halt of trading for 45 minutes. This was a landmark occasion as it showed the global spread of the pandemic’s effect on financial markets.
2. 2001 (Ketan Parekh Crash): The Circuit breakers came into play in the year 2001 during the Ketan Parekh crash, showing the effects of stock market manipulations and fraud.
3. 2008 (Financial Crisis): The global financial crisis further saw circuit breakers getting triggered in the Indian market, as the ripples of global economic turmoil found their way to Indian markets.
4. 2004 (Post-General Elections): After the 2004 general elections trading was halted many times as investors expressed concerns regarding the uncertain policy direction of the new Government.
Conclusion
Circuit breakers are like a necessary safety net in an increasingly jittery, sentiment-driven market. As Indian markets gain global traction and more retail participation, the onus for investor protection remains uppermost.
With an understanding of LCLs and UPLs, along with varying bands, traders and investors are better positioned to make reliable decisions and avoid trading during volatile price action.
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