Every stock which is traded on exchanges (NSE or BSE) has to maintain circuit filters. Circuit filters are price limits applicable to stocks below or above a stock is not allowed to trade. If anyone of the price limit is breached, trading is halted for time being. These price limits are applicable in 5%, 10%, 20% and varies from a stock to stock.
The main motto of applying circuit filters is to prevent unwanted volatility in the prices of stocks. This also protects investor’s rights as too much downside movement of stock prices is prevented through it.
Circuit filters are of 2 types
The lower circuit or LC: Below this price, the stock could not be traded in a day.
The upper circuit or UC: Above this price, the stock could not be traded in a day.
An investor or trader could get the applicable price limits on stocks through moneycontrol page.
These circuit filters are not applicable to the stock which are in FnO (derivative segment). For example, PNB is a stock which has its derivatives listed on NSE. Therefore the prices of PNB could increase or decrease by any limit in a day.
Why there is no circuit filter for FnO stocks?
The aim of circuit filters is to prevent unwanted volatility and investors interests. But when a stock has its derivatives one can hedge and protect themselves from unwanted volatility.
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