A circuit breaker is an emergency trading rule that pauses U.S. stock trading after severe market declines.
U.S. regulators introduced market-wide circuit breakers after the 1987 crash, when rapid selling overwhelmed normal trading processes. The original rules were designed to give investors time to assess information and reduce the risk of disorderly transactions. A trading halt can interrupt a downward feedback loop in which falling prices trigger more automated or forced selling.
Modern U.S. rules use percentage declines in the S&P 500 to determine market-wide halts. A 7% decline before 3:25 p.m. Eastern Time triggers a Level 1 halt, while a 13% decline triggers Level 2. A 20% fall triggers a Level 3 halt and ends trading for the day. Separate price limits also apply to individual stocks.
Circuit breakers do not prevent losses or guarantee a recovery. They are temporary safeguards. The term is sometimes confused with a trading curb, which can refer more broadly to restrictions on particular instruments or transactions.