What It Means
A circuit limit is the maximum percentage a stock or index is allowed to move up or down in a session before the exchange automatically pauses trading in it. The upper circuit is the maximum allowed rise; the lower circuit is the maximum allowed fall.
How It Works
Exchanges set circuit limits, commonly 5%, 10%, or 20% depending on the stock's volatility band and market cap, to slow down panic buying or selling and give the market time to absorb news. When a stock hits its circuit, trading in it freezes at that price; if it's an upper circuit, you'll see buy orders piling up with no sellers willing to trade, and the reverse for a lower circuit. Index-wide circuit breakers (like a 10%, 15%, or 20% move in Nifty or Sensex) work similarly but pause the entire market, not just one stock. An SME IPO is especially prone to hitting its circuit, since thin natural trading makes big price swings more likely, which is exactly why those stocks require a mandatory market maker.
Warning
A stock stuck at its upper circuit can look "unsellable". Buy orders can't be matched to a seller until the price is allowed to move further or a seller finally shows up, so don't assume you can exit whenever you want.