A circuit breaker automatically pauses trading after unusually large market declines in the safeguard system developed after the 1987 crash.
Circuit breakers are designed to interrupt panic selling and give investors, exchanges, and market makers time to assess information. Depending on the market and rules, a pause can apply to an individual security, an index, or the entire trading venue.
The 1987 Black Monday collapse prompted regulators and exchanges to create formal market-wide trading halts. In the United States, modern rules use specified percentage thresholds tied to the S&P 500, with different levels producing temporary halts or an early close.
A circuit breaker is not the same as a margin call. A margin call demands additional collateral from an investor whose leveraged position has lost value, while a circuit breaker is a market-structure rule applied by an exchange or regulator.