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Circuit Breaker

Glossary

A circuit breaker is a mechanism used by stock exchanges to temporarily halt trading when there’s extreme market volatility. These pauses help prevent panic selling and give investors time to process market conditions.

In the U.S., major circuit breakers trigger at three levels based on the S&P 500’s decline within a trading session:

  • Level 1: 7% drop → 15-minute trading halt
  • Level 2: 13% drop → 15-minute trading halt
  • Level 3: 20% drop → Trading halted for the rest of the day

Circuit breakers were implemented after the 1987 stock market crash and have been triggered during events like the COVID-19 market panic in 2020. See also: Volatility Halt