How Upper Circuit is Calculated?

This is understood that the share market halts as soon as the stock hits the upper circuit. As a trader, it is common to come across such situations. But for active traders, such a situation opens an opportunity to earn more profit. But how is the upper circuit calculated?

The upper circuit is the maximum price the stock gains in a particular trading day. It is the time when there are only buyers in the market. Trading in upper circuit stock proves to be highly beneficial.  

To reap the benefit of such a situation, it is good to keep checking the maximum price point the stock can reach. You can determine the upper circuit of the stock through a simple calculation. 

How to Know the Upper Circuit of a Stock?

It is essential as a trader to understand calculating and know how Upper Circuit is Calculated to grab all the profits. The primary method of calculating the upper circuit is usually based on the previous day’s closing price and the circuit limit. 

You can easily check the value of the upper circuit in your trading app or can look for the information under the live market scrip on NSE and BSE websites. 

As per the upper circuit rules, the circuit limit is set at 10%, 15% or 20%. 

To understand How Upper Circuit is Calculated, here is an example. 

Miara has just started trading and invested in stock worth Rs. 200. The exchange playing its part has put an upper limit of 20%. If Miara trades on this stock, she should know that its maximum price can go upto Rs. 240. Let us make it easier for Miara and you as well.

20% of Rs. 200 = Rs. 40

200+40= Rs. 240 

Therefore, the upper circuit limit of this stock is Rs. 240. 

This implies that when the price will reach Rs. 240 then the trading will stop, and there will only be buyers.  

Now after the short halt, the market resumes again with the new opening price. This price depends upon various parameters. 

So, let’s suppose that the market opens with the new price, ₹230 with the circuit limit of 20%. 

Here if the share price hits, ₹276 (20% of 230 + 230) before the market closes, then the market halts again depending upon the trading time. 

Thus, reaching the upper circuit, and opening the market after the halt creates profitable opportunities for traders. 

Conclusion 

The upper circuit plays an essential role in the stock market as it prevents the traders from panic selling and the hustle.

Keep a check on the upper circuit price and trade smartly to reap the maximum benefit.

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