Stock market circuit breakers
- Trading stops temporarily when the market declines to set thresholds
- Cool-down period applies to stocks and stock index futures
- The market can reopen far from where it closed
The US stock-market circuit breakers are temporary trading halts designed to give the market a “time out” and allow it to regroup. In recent weeks, circuit breakers have triggered several times as market volatility has reached its highest levels in years.
It’s important to understand how circuit breakers work, and how these interruptions may affect your trading and investing decisions.
Trading is halted in US stocks when the S&P 500 (SPX) falls a certain percentage below the previous day’s closing price:
Circuit breaker 1: If the SPX falls 7% below the previous day’s close, trading stops for 15 minutes.
Circuit breaker 2: If the SPX falls 13% below the previous day’s close—before 3:25 p.m. ET—trading stops for 15 minutes. Note: If the SPX falls 13% after 3:25 p.m. ET, trading will not stop.
Circuit breaker 3: If the SPX falls 20% below the previous day’s close, trading stops for the remainder of the day, regardless of what time it is.
Key point: When the market reopens after a circuit breaker has been triggered, prices may have moved significantly from where they were before trading was halted.
The key thing to remember is that when the market reopens after a circuit breaker has been triggered, prices may have moved dramatically from where they were when trading was halted. As a result, limit orders placed during a trading halt may not get filled, while market orders may get filled far from where you expected.
If you want to ensure a trade is filled at a specific price level, you should use a limit order, with the understanding that your order may not get executed at all. If you want to be filled as quickly as possible, you can use a market order, but you must accept the risk of getting filled at a price you don’t want.
Other markets: Stock index futures use the same circuit-breaker thresholds as the regular stock market—that is, they also stop trading when the S&P 500 index triggers one of its circuit breakers—but they have an additional rule for the after-hours market: Trading is halted after any 5% move above or below the previous day’s close that occurs outside the stock market’s regular trading hours of 9:30–4 p.m. ET.
Finally, in the event the third circuit breaker (-20%) is triggered, mutual fund orders received before the halt will be honored, while those received after it will be held until the following business day for execution.