Circuit Breakers
What It Is
Circuit breakers are automatic trading halts triggered when markets fall rapidly, designed to prevent panic selling and restore order.
Why It Matters
They help stabilize markets during extreme volatility and give investors time to assess information.
How It Works
- Triggered by percentage declines in major indexes
- Trading pauses for a set period
- Different levels activate deeper halts
Key Components
- Level 1, 2, and 3 thresholds
- Market‑wide halts
- Exchange‑specific rules
Example
During the COVID‑19 crash in March 2020, U.S. markets hit Level 1 circuit breakers multiple times.
Key Takeaways
- Circuit breakers reduce panic.
- They provide cooling‑off periods.
- They are essential for orderly market function.