Circuit breaker

A circuit breaker is a market-wide trading pause triggered automatically when a major index, typically the S&P 500, falls a large percentage in a single session. The exchanges built these pauses into the market's rules after past crashes showed how a fast, self-reinforcing decline can spiral before anyone has time to assess what is happening. When the decline hits a set threshold, trading across the entire US stock market halts for a fixed period, giving investors a moment to absorb the situation before trading resumes.

The system uses three fixed thresholds, measured as a decline in the S&P 500 from the prior day's close. A 7% or 13% drop halts trading for 15 minutes, as long as it happens before 3:25 p.m. Eastern time, while a 20% drop halts trading for the rest of the session at any time of day. The levels have been adjusted over the years, but the underlying design has stayed consistent, pause trading, let information circulate, then let the market reopen and continue price discovery.

Circuit breakers are different from a trading halt on an individual stock, which pauses one security rather than the entire market. They are also a blunt tool, they do not fix whatever caused the decline, they only interrupt trading momentum long enough to prevent panic selling from compounding on itself. For long term investors, a circuit breaker event is mostly a sign of how volatile a session has become, not a reason on its own to change an investment plan.