1. How are the circuit limits decided for a particular stock?

The limit of the circuit varies from stock to stock depending on various variables such as liquidity, market capitalisation, and volatility. In India, the general daily circuit bands are 2%, 5%, 10%, and up to 20% from the previous day's closing price. These limits periodically go through review by the exchanges and regulators, such as SEBI, to strike a balance between investment protection and market efficiency.

2. Can a stock trade beyond the upper or lower circuit on the same day?

No, once a stock reaches its circuit limit, be it the upper or lower limit, it cannot trade above or below that price for the remaining part of that trading session.

3. What if a stock repeatedly hits its upper circuit?

This would be a signal for strong bullish market sentiment. However, ahead of making any investment decisions, market participants should also assess fundamentals in order to avoid chasing overbought stocks .

4. How do circuit limits work to protect market participants?

Circuit limits protect market participants, preventing irrational price fluctuations and reducing the chance of market manipulation, while assuring orderly trading and giving markets an opportunity to absorb new information without causing shock waves or surges in prices on speculative grounds.

5. Can traders trade shares after a stock hits its circuit limit?

After reaching a circuit limit, the trading of that particular stock is either suspended temporarily or restricted within that particular price band. Traders can place new buy or sell orders, but they can't transact above the upper circuit or below the lower circuit till the next trading session.