Circuit Breaker

A circuit breaker halts all trading temporarily when a market index falls sharply in a short period. The name comes from the electrical device that cuts a circuit.

The purpose is breaking the chain of panic. A sharp fall triggers automatic stop-losses and forced liquidations, so declines feed on themselves; pausing gives people time to think.

It usually operates in stages by the size of the drop: a few minutes at 8%, longer at 15%, and closing the session at 20%. Thresholds and durations differ by country.

It was introduced after Black Monday in 1987, prompted by a single-day fall exceeding 20%, and has triggered several times since — including repeatedly across markets in March 2020.

Its effectiveness is debated. One view credits it with calming markets; another argues that knowing trading will halt creates pressure to sell beforehand, pulling the decline forward. For individuals, the practical point is that orders do not execute while a halt is in force. Prices often jump right after trading resumes, so rushing works against you.