Zerodha circuit limits MIS cover order short delivery auction penalty intraday

MIS and CO positions when circuit limits are hit

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When a stock locks at its circuit limit, an intraday MIS or cover order position on Zerodha usually cannot be squared off, because a circuit lock leaves only one side of the order book with no counter-orders to transact against, and the position then converts to a delivery trade carrying overnight risk, possible short delivery, and an exchange auction penalty. A circuit limit is the daily price band beyond which a scrip cannot trade; once price reaches it, the scrip freezes there until orders appear on the opposite side or the band is revised.

This entry sets out what happens to intraday positions in two cases that are not symmetric: a sell stuck at upper circuit, which is the more dangerous because it routes to short delivery and auction, and a buy stuck at lower circuit, which converts to a cash delivery holding. It also covers the stop-loss trap specific to circuit days, where an SL-M trigger placed outside the band can never fire, and the holding risk and charges that follow conversion. For the mechanics of fixing a position the auto-square-off missed, see how to fix an intraday position not auto-squared-off .

Conflict-of-interest disclosure. This guide is published by the WebNotes Editorial Team for informational purposes and is written independently. WebNotes operates a Zerodha account-opening referral programme, disclosed on the pages that carry the referral link; this guide does not carry it and earns no referral commission from the procedure described here.

Why a circuit lock blocks the square-off

An intraday position is closed by an opposing market order: a long is sold, a short is bought back. A market order fills only when the order book holds resting orders on the opposite side at a tradable price. When a scrip locks at its circuit, the book collapses to one side. At upper circuit, buyers queue at the ceiling and no sellers remain, so there is nothing to buy. At lower circuit, sellers queue at the floor and no buyers remain, so there is nothing to sell. The square-off mechanism, whether yours or the broker’s automatic one, has no counterparty, and the order rests unfilled.

Because the auto-square-off cannot transact, the intraday trade is left open and converts the same evening to a delivery position. Zerodha’s policy is explicit that this conversion creates significant risks, including auction penalties and margin blocks. The conversion is automatic; you do not choose it, and you discover it as a CNC or NRML line rather than an MIS line on the Positions tab .

Sell position locked at upper circuit

This is the case that hurts. You sold a scrip intraday under MIS or a cover order, intending to buy it back the same day. The stock then locks at upper circuit, where only buyers remain and no sellers are available. You cannot repurchase the shares you sold, so the trade converts to delivery, and you owe shares you may not hold.

What follows depends on your demat balance. If you happen to hold the stock in demat, those shares are delivered to the buyer and the matter closes. If you do not hold the shares, you face short delivery or default. The exchange runs an auction to purchase shares on your behalf and deliver them to the buyer on T plus two settlement, and you incur an auction penalty computed from the settlement price. Until the auction completes, Zerodha blocks 120 per cent of the closing price against your account with the narration “Short delivery margin blocked for sale of [scrip name]”. The penalty can exceed the intraday move you were trading, which is what makes shorting a circuit-prone scrip intraday a poor risk.

Buy position locked at lower circuit

The mirror case is less severe but still costly. You bought a scrip intraday and the stock locked at lower circuit, where only sellers remain and no buyers are available. You cannot sell the shares you bought, so the trade converts to a delivery holding that requires full cash.

From there you have a choice. With sufficient funds in the account, the stock is delivered to your demat. With insufficient funds, you can either add the required funds or sell existing holdings to cover the requirement. If you take no action, Zerodha will sell the stock to cover the required funds, which means a forced exit at the next session’s price, often a further leg down if the scrip stays weak. The conversion itself carries the overnight gap risk: a scrip that locked at lower circuit today can open lower again tomorrow.

The SL-M and SL trigger trap on circuit days

A common and costly misunderstanding is that a stop-loss protects an intraday position regardless of a circuit. It does not, if the trigger sits outside the band. A stop-loss fires when the last traded price reaches the trigger. But price cannot legally move past the circuit, so a trigger placed beyond the band, for example a sell stop below the lower circuit, can never be reached, and the order never activates. The position runs unprotected straight into the circuit lock.

Two further points compound this. Some SL-M orders are restricted : an SL-M whose trigger lies outside the current price band is rejected at entry, because the exchange will not accept a market-on-trigger order that could only execute outside the band. And NSE withdrew SL-M for options from 27 September 2021, so options traders relying on a stop must use SL (stop-loss limit) instead. The practical rule on circuit-prone scrips: place trigger prices inside the band, size positions for the possibility that no exit fills, and do not treat a stop as cover against a circuit gap.

Holding risk and charges after conversion

A converted position is no longer the bounded intraday trade you opened. It is a delivery or carry-forward position with overnight exposure. The risks stack: gap risk to the next open, which on a circuit-bound scrip can be another full circuit move; a margin shortfall penalty from the exchange if you lack the margin to hold an NRML carry-forward; and the Rs 50 plus 18 per cent GST per-order auto-square-off charge when the RMS desk eventually flattens the position. For a short that went to short delivery, the auction penalty is the dominant cost and is set by the auction outcome, not by your entry price.

The defence is structural, not reactive. Avoid intraday MIS or cover-order shorts in scrips that frequently lock at a circuit, such as low-float ASM or GSM names and many trade-to-trade scrips. Where you do trade them, plan an exit minutes before any circuit threat materialises, because once the scrip locks, the exit window is gone.

How circuit-lock conversion relates to other rejections

The same circuit mechanics surface as rejections at order entry. An attempt to place an order beyond the band returns a circuit limit rejection or a price band rejection . A theoretical-price check on illiquid derivatives can produce a theoretical price rejection . These are pre-trade controls doing the same job from the other direction: keeping orders inside the band. A converted position that you then mishandle can also draw an RMS rejection when you try to act without the funds to support it. Treating the band as a hard constraint at both entry and exit is the consistent way to trade circuit-prone scrips.

See also

External references

References

  1. Zerodha support, What will happen to my intraday (MIS/CO) position if circuit limits are hit? (as of 21 June 2026).
  2. Zerodha support, Why is my MIS or CO position not auto squared off? (as of 21 June 2026).
  3. NSE India, price band and circuit filter framework, nseindia.com.
  4. SEBI, circuit filter and settlement framework, including auction of short deliveries on T plus two.

Related articles

Frequently asked questions

What happens to an MIS position if the stock hits a circuit limit?
It usually cannot be squared off, because a circuit lock leaves only one side of the order book. The intraday trade then converts to a delivery position, exposing you to overnight risk and, for a sell, to short delivery and an auction penalty.
Why can't I exit a cover order when the stock is locked at a circuit?
A circuit lock means there are no counter-orders to fill your exit. A buy locked at lower circuit has no buyers, a sell locked at upper circuit has no sellers, so the market order that would close the position has nothing to transact against.
What is the risk if I sold intraday and the stock hit upper circuit?
You cannot buy back the shares, so the trade converts to delivery. If you do not hold the shares, you are short, the exchange auctions them to deliver to the buyer on T plus two, and you bear the auction penalty based on the settlement price.
Does Zerodha block margin when my sale goes to short delivery?
Yes. Zerodha blocks 120 per cent of the closing price against your account with the narration ‘Short delivery margin blocked for sale of [scrip name]’ until the auction settles the shortfall.
Can a stop-loss protect me if the stock is locked at a circuit?
Not if the trigger sits outside the circuit band. The price cannot legally move past the circuit, so a trigger beyond it never fires. Place stop triggers inside the band, and accept that a circuit lock can leave a position unprotected.
What should I do if my intraday buy converted to delivery at lower circuit?
Add the full cash to hold the stock as delivery and sell it the next session, or sell existing holdings to cover the requirement. If you take no action, Zerodha will sell the stock the next day to recover the funds.

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