3.13What is a lower circuit?
1What is it?
A stock hits its lower circuit when it reaches its maximum allowed fall for the day.
2Why does it exist?
At the lower circuit there are only sellers. You cannot sell because nobody is buying, which can trap you for days.
3Stock market example
Bad news, like a fraud allegation, sends a stock from ₹100 to ₹95 (5% band). Sellers pile up and the stock stays frozen. It may hit lower circuits for several days in a row, and you can’t exit.
4Risks
- You can be trapped in a falling stock for many days.
- This is why position size matters (Level 12).
5Quick revision
- Lower circuit = max fall reached.
- Only sellers remain; you may not be able to exit.
- A major risk in small-cap stocks.
6Knowledge check
Q1. Why is a lower circuit dangerous?Show answer
There are no buyers, so you cannot sell and may be stuck as it falls day after day.
Q2. Previous close ₹80, 10% band. Lower circuit?Show answer
₹72.
Q3. Are large-cap stocks often stuck in lower circuits?Show answer
Rarely; it is more common in small, illiquid stocks.