Circuit Breakers

1. What Are Circuit Breakers?

Circuit breakers are automatic trading halts triggered when markets move beyond predefined thresholds in a single trading session. They're designed to prevent panic selling, give investors time to reassess, and prevent cascading liquidations.

2. Three Levels of Market-Wide Circuit Breakers

For the Nifty 50 and Sensex, circuit breakers are triggered at three levels based on the previous day's closing price:

Level	Movement	Action	Duration
Level 1	10%	Trading halt	45 minutes
Level 2	15%	Trading halt	45 minutes
Level 3	20%	Trading halt for the day	Remainder of day

If triggered before 1:00 PM: 45-minute halt. If triggered between 1:00-2:30 PM: 15-minute halt. If triggered after 2:30 PM: No halt (market continues to close).

3. Individual Stock Circuit Filters

Individual stocks have their own circuit limits based on category:

• Category 1 (Top 500 by market cap): 10% circuit (up or down)
• Category 2 (Next 500): 15% circuit
• Category 3 (Rest): 20% circuit

These are daily price bands. A stock cannot trade above its upper circuit or below its lower circuit for that day. Importantly, circuits are not symmetrical for all stocks — some may have different upper and lower limits based on volatility history.

4. What Happens During a Halt?

When a market-wide circuit breaker triggers:

1. All equity trading stops immediately
2. Open orders may be cancelled or held depending on broker policy
3. Derivatives trading also halts (equity derivatives are linked to cash market circuits)
4. Trading resumes with a pre-open session after the halt period

During the halt, brokers cannot accept new orders for the halted segment. This is why you might see "trading suspended" messages on your broker app.

5. Historical Triggers

Circuit breakers have been triggered multiple times in Indian market history:

• March 2020: COVID-19 crash triggered lower circuits multiple times
• 2008: Global financial crisis caused repeated circuit hits
• 2004: BJP's unexpected election loss triggered a lower circuit

These events prove that circuits, while helpful, don't prevent large moves — they just slow them down.

6. Trading Strategies Around Circuits

• Upper circuit buying: Buying a stock hitting upper circuit assumes it will continue rising. Risky — you may be the last buyer before a reversal.
• Lower circuit selling: If you're stuck in a stock at lower circuit, you may not be able to exit until the next day.
• Index circuit hedging: When markets approach circuit levels, options implied volatility spikes — creating opportunities for volatility sellers if you believe the circuit won't trigger.