In order to ensure orderly trading and protect investors from extreme price fluctuations or erratic orders, NSE (National Stock Exchange) has implemented two key price control mechanisms:

1. F&O Execution Range
2. Circuit Limits

Though both serve risk management purposes, they operate differently and apply to different market conditions. Here’s a clear distinction between the two:

1. F&O Execution Range

The F&O Execution Range was introduced in 2014 to prevent trades from occurring at irrational prices, especially in illiquid contracts. This range ensures that market orders in Futures & Options (F&O) are only executed if they fall within a specified price band relative to the live market price.

Key Features:

• Applies to all F&O contracts, including both futures and options.
• A live reference price is maintained for each contract.
• Orders will only be executed if they fall within a predefined price band from this reference price.
• Prevents erratic order executions and high impact costs in illiquid contracts.

Reference Price Logic:

• At Market Open: Based on the theoretical price derived from the underlying asset.
• During Trading Hours: Calculated using a 1-minute simple average of trade prices. This reference price updates every minute on a rolling basis.

Note: If an order is placed outside the execution range, it will be rejected by the system.

2. Circuit Limits (Price Bands)

Circuit Limits, also known as price bands, are designed to control excessive volatility and potential price manipulation in both F&O contracts and equity stocks. These limits set the maximum permissible upward or downward movement for a security on any given trading day.

Key Features:

• Applied to both stocks and F&O contracts.
• When a stock or contract hits its circuit limit, trading is halted or restricted until further notice.
• NSE may intervene manually to relax the limits if market conditions justify it.

How Circuit Limits Work:

• Unlike the F&O execution range, circuit limits are fixed for the day and do not change unless breached.
• If the upper circuit is hit: Only buyers are present, and prices cannot move higher.
• If the lower circuit is hit: Only sellers are present, and prices cannot fall further.

Circuit limits are crucial in maintaining market integrity, especially during extreme volatility.

Key Differences at a Glance:

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