Stock market circuit breakers
- Trading stops temporarily when the market declines to set thresholds
- Cool-down period applies to stocks, options, 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. Circuit breakers can be triggered several times when there's a lot of market volatility.
It’s important to understand how circuit breakers work, and how these interruptions may affect your trading and investing decisions.
Trading is halted in 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 before 3:25 p.m. ET, trading stops for 15 minutes. If the SPX falls 7% after 3:25 p.m. ET, trading will not stop.
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% at or 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.
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