Circuit breakers were introduced after the 1987 market crash to pause trading during extreme price declines.
The worldwide sell-off on 19 October 1987 exposed how quickly computer-linked orders and investor panic could overwhelm exchanges. In the United States, regulators and exchanges developed trading halts intended to give investors time to absorb information and reduce disorderly selling.
Modern circuit breakers can halt trading in an individual security or across the market when prices move beyond specified thresholds. U.S. equity-market rules use percentage declines in the S&P 500 to determine broad market halts, while other exchanges use their own frameworks.
Circuit breakers do not prevent losses or guarantee a rebound. They are designed as a cooling-off mechanism. They are also distinct from margin calls, which require investors to provide more collateral after losses, and from ordinary exchange trading curbs.