In the stock market, the stock trading at some particular point would not fall beyond the set limit to prevent the loss. The set limit is called the lower circuit in the stock market. In this article, we will explain how to exit from lower circuit stock.
The price of the lower circuit depends on different factors, which can affect the market to no small extent. In short, we can say that the lower circuit is the benchmark until which stocks’ prices will go downwards on a particular trading day. Also, when the stocks go down, there are only sellers and no buyers, making it difficult to exit the trade.
Moreover, if the share or the index hits the lower circuit and breaks it, the market halts for a few minutes to hours and maybe for the whole day.
What is Lower Circuit Limit?
The share market is all about the prices of stocks fluctuating, and this sudden rise and fall can create a panic for investors. During this time, the circuit works in full swing.
The inconsistent moment of the price, i.e., rising or falling in stock price, can often cause an upper or lower circuit. Moreover, this can cause a significant loss to the investor if you are involved in a falling market.
When the stock hits the lower circuit, there are no buyers; only sellers are there. In short, the lower circuit breaker is a regulatory tool that helps check that the price doesn’t go down much and loss does not increase.
Also, the stock market regulatory board has set the pre-defined circuits for every stock, which ranges from 10%, 15%, to 20%. For example, if a person has bought a stock of Rs. 500, then the limit set will be 20% on it.
If you calculate the value, 20% of 500 equals 100, which means the stock is allowed to drop to 400 for the day. The prices can go down until this point; if it further goes down, trading will halt.
This halt will ensure that the investor does not suffer from too much loss and the panic created to buy or sell the stocks. If there is no circuit, the loss will affect both the short-term trader and long-term investor and will suffer a significant loss.
What happens when the stock hits the lower circuit?
Think of the chance that the stock hits the lower circuit and the consequences followed. Conditions where only one can sell the stocks, only sellers exist, i.e., more traders look towards exiting their position.
The share can come to this point due to many factors like the rumor around the company, news alerts of bankruptcy, etc. for example when the epidemic hit globally, the stock and indexes started seeing a sharp downfall. This came to hit the 10% lower circuit, which led to the halt in the stock market for 45 min on March 13, 2020.
Now the question comes why only 45 min. This limit depends on the factors like the time at which the lower circuit is triggered and the range of the circuit.
Note – You can also read our latest article about the best monopoly stocks in India
Guide on How to exit from lower circuit stock?
If you are an investor, it doesn’t matter that you are a beginner or a long-term investor; the important thing is the understanding and the knowledge of the stock market.
The question here is how one can exit from the lower circuit and sell at the price range.
First of all, it is advisable to break free from the lower circuit as long exposure can cause a lot of loss to the investor. One of the most convenient ways of selling stocks during intraday trading or short-term trades is to place an order during the pre-open session or AMO (After Market Order). After these sessions come to an end, these orders start executing.
The market works on a first-come, first-serve basis during the circuit breaker. Placing the order early might help you sell the stock at the right time.
This is the reason that the pre-opening and AMO (After Market Order) order might help you to exit the trade even if the market hits the lower circuit.
Conclusion – How to exit from lower circuit stock
In conclusion, this article covers everything you need to know about how to exit from lower circuit stock. The lower circuit is a benchmark till when a price or the share index can drop to ensure the minimum loss of the investor or the traders. Moreover, the share can halt if it hits the circuit. To ensure your minimum loss, it is recommended to exit the trade.