In stock-market trading, what is a circuit breaker designed to do?

In stock-market trading, a circuit breaker is designed to temporarily halt or restrict trading after unusually large price movements.

The mechanism is intended to give investors and market participants time to assess rapidly changing information instead of allowing disorderly trading to continue without pause. Rules differ by market and may use thresholds based on an individual security, a broad index, or the time of day.

U.S. markets introduced modern market-wide circuit-breaker rules after the severe volatility of October 19, 1987, known as Black Monday. Later reforms created specific percentage thresholds and procedures for trading pauses. Individual stocks can also face limit-up or limit-down pauses under separate mechanisms.

A circuit breaker does not determine whether a stock is fundamentally valuable and does not guarantee that prices will recover. Trading can resume after the specified pause or review period, subject to the applicable exchange rules.