What are circuit limits or price bands? Why are they used?

Circuit limits (price bands) are the maximum and minimum price levels within which a stock can move during a particular trading session. Once a stock hits its upper or lower circuit limit, trading in that stock is paused or restricted.

• Prevent Volatility: They help prevent sudden and extreme price movements, which could be caused by market manipulation or unforeseen news.
• Ensure Market Stability: Circuit limits provide a cooling-off period for investors to reassess the stock’s value and avoid panic buying or selling.
• Maintain Orderly Trading: They create a structured environment that prevents excessive speculation and sharp price fluctuations.