What Is a Circuit Breaker?

A circuit breaker is a mechanism that temporarily halts trading when a stock's price moves sharply within a short period.

How it works

For individual stocks, trading may be temporarily suspended when a special quote persists for a certain period. For instruments such as stock index futures, mechanisms also exist that halt trading market-wide when an index moves sharply.

Purpose

The mechanism exists to prevent investors from losing the time needed to make calm decisions amid excessive short-term price swings, and to help curb disorder in the market.

This article is provided for general informational purposes only and does not recommend or solicit the purchase or sale of any specific investment method or security. Final investment decisions are your own responsibility.

Frequently Asked Questions

How does a circuit breaker differ from the daily price limit?
The daily price limit (see related page) sets the upper and lower bounds for a day's price movement in advance, while a circuit breaker halts trading itself in response to a sharp move over a short period.
What happens when a circuit breaker is triggered?
Trading in that stock, or in the market as a whole, is suspended for a set period of time. New orders or order changes may not be accepted while trading is suspended.