What is Upper Circuit?
Upper circuit is an investment term refers to the highest price a security has reached during either intraday trading or a span of days. It is determined from the information that comes from the stock exchange and reflects the overall sentiment of investors about the scrip's value. Factors such as economic fundamentals and news announcements about the company can affect how its stock performs in terms of hitting an upper circuit over any given period.
How do stocks reach Upper Circuit?
Upper circuit triggers come into play if the stock is subjected to numerous buying orders which cause an unreasonable increase in its prices. As a result, the stock exchange will place an upper and lower trading band to regulate the rise or fall of certain stocks.
What happens if a stock hits the upper circuit?
When stock prices hit the upper circuit, means the price of the stock has gone up to its maximum prescribed limit and trading in that stock is stopped and no further transactions can take place until the market regulator or the exchange decides to lift the circuit. This is done on ad hoc basis by evaluating the current market capitalization of the asset and its liquidity levels before letting it into normal trading. When this happens, traders often find their existing positions locked in.