What does circuit limits i.e price bands mean?
Circuit limits, i.e. price bands, are safeguards set by the exchange to prevent large movement in the price of stocks in a very short time. When the price hits the upper or lower circuit limit set by the exchange, orders will remain pending at that circuit price for that particular stock or contract( EQ, FNO, CDS or MCX).
The price band is the price range within which the stock can be traded for that day. The circuit limits vary from 2 to 20% depending on the liquidity, volume and the category of the stocks.
You can find the upper and lower circuit limits for all instruments in the market-depth on Kite. For a visual walkthrough, please refer to the GIF below.
If the price hits the upper circuit limit then all the orders will remain pending as bids at upper circuit and there will be no sellers or offers in the market for that stock.
If the price hits the lower circuit limit then all the orders will remain pending on the offer side at lower circuit, and there will be no buyers or bids in the market for that stock.
Orders placed out of the price band will be rejected, and if the price drops to the upper or lower price band, your orders will remain pending till the limits are relaxed.
To know what happens when you have an MIS position and circuit limits are hit, please check out this article .
Equities with Futures & Options (F&O) contracts don't have fixed circuit limits for the day. However, there is a dynamic price band of 10%. The exchange has a fixed operating range of 10% on either side to ensure trading is done within the specified range. When the price approaches these levels, the limits are relaxed further. There is currently a cooling period of 15 minutes before new limits are added for F&O stocks. You can learn more about this here .