Definition
Circuit Filter (Index)
An index circuit filter is a market-wide trading halt triggered when the Nifty or Sensex moves sharply, designed to cool panic.
Distinct from per-stock price bands, the market-wide circuit breaker halts all trading when the Nifty/Sensex moves 10%, 15%, or 20% in a day. The halt length depends on the trigger level and the time of day; a 20% move halts trading for the rest of the session.
This mechanism, triggered famously during the March 2020 COVID crash, gives investors time to absorb information and prevents disorderly cascades. The reference is the previous day's close, and the halts apply simultaneously across the NSE and BSE.
Related terms
- Price Band / Circuit Limit (per stock)A price band sets the maximum percentage a stock can rise (upper circuit) or fall (lower circuit) in a single trading day.
- Correction vs CrashA correction is a moderate market decline (typically 10-20%), while a crash is a sudden, severe fall, often signalling or accompanying a bear market.
- India VIXIndia VIX is the NSE's volatility index, measuring the market's expectation of Nifty volatility over the next 30 days — popularly called the 'fear gauge' because it spikes when investors turn anxious.
Plain-English explainer from Investdesk Investors Encyclopedia. General information, not financial advice.