A circuit breaker was introduced in the United States after the 1987 crash to pause trading during extreme market declines.
The October 19, 1987, collapse exposed how quickly automated orders and investor panic could overwhelm available buyers. In response, U.S. regulators developed coordinated trading halts for large movements in broad market indexes. The aim was to give investors time to assess information and reduce disorderly, feedback-driven selling.
Circuit breakers do not guarantee that prices will recover or prevent an economic crisis. They temporarily interrupt trading when specified thresholds are reached, and the rules have changed over time. Modern U.S. market-wide levels are based on percentage declines in the S&P 500, with different consequences at different thresholds.
A circuit breaker is distinct from a margin call. A margin call is a demand for additional collateral from an investor whose borrowed position has lost value. Circuit breakers apply to market trading itself, while margin calls apply to an investor's financing arrangement.