What it is
A circuit breaker is a temporary trading halt imposed by stock exchanges to prevent excessive volatility and stabilize markets during sharp price declines. These mechanisms are triggered when major market indices, such as the S&P 500, fall by specific percentages within a single trading day. The Securities and Exchange Commission (SEC) sets these thresholds for the broader market, which typically involve 7%, 13%, and 20% drops from the prior day's closing price.
When a circuit breaker is triggered, trading in all listed securities on the exchange is paused for a set period, typically 15 minutes for the first two levels, allowing investors to reassess market conditions. A 20% drop, if occurring before 3:25 PM ET, can halt trading for the remainder of the day. Circuit breakers are designed to give investors a cooling-off period and to prevent cascading sell-offs, though they can also delay price discovery.
Why it matters
Circuit breakers protect markets from extreme, rapid declines, giving investors time to absorb information and preventing panic. Knowing their thresholds helps you understand market pauses during volatility.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice