What does Circuit Breaker mean?

A circuit breaker is an automatic, exchange-wide trading halt triggered when the market falls too far too fast, giving traders a pause to react.

Exchanges use circuit breakers to automatically halt trading market-wide when prices fall sharply in a short time — 7%, 13%, and 20% drops in the S&P 500 each trigger a different level of halt. They exist to stop panic-driven crashes from spiraling further.

Circuit Breaker example

If the S&P 500 falls 7% from the previous close before 3:25pm ET, US stock trading halts for 15 minutes. A 13% drop triggers another 15-minute halt, and a 20% drop closes the market for the rest of the day.

Common beginner mistake

Panic-selling the moment trading resumes. The pause exists so people can think, not so they can line up to sell.