When the stock market moves too quickly down, trading can be paused automatically. This is known as a circuit breaker. These temporary stops are triggered by steep, rapid declines in the S&P 500 index, and are intended to give investors a moment to reassess before panic selling snowballs.
Circuit breakers exist because markets, especially in the digital age, can react faster than human participants. They act as a reset button to slow things down during periods of extreme stress. This can also be driven by AI and other automatic trading programs, so these breaks can allow human intervention.
There are three levels of market-wide circuit breakers in the U.S., tied to the S&P 500’s performance:
- Level 1: A 7% drop triggers a 15-minute halt if it happens before 3:25 p.m. Eastern Time.
- Level 2: A 13% drop leads to another 15-minute halt, also only before 3:25 p.m.
- Level 3: A 20% drop shuts down the market for the rest of the day, no matter what time it occurs.
These are separate from single-stock halts, which occur when an individual stock moves too fast in a short time. They are also separate from orders to close the stock markets.
When Have Stock Market Circuit Breakers Been Used?
Stock market circuit breakers don’t get activated often. They were introduced after the 1987 Black Monday crash but were first used in 1997 during a 7% drop triggered by the Asian financial crisis. After that, the system was reworked several times to reflect changing market conditions.
The most notable modern example came in March 2020. Amid the early shock of the Covid-19 pandemic, the S&P 500 tripped the Level 1 breaker four times in just over a week. Panic over the global economy sent stocks tumbling at the open, halting trading minutes into the session.
On March 9, March 12, March 16, and March 18, the market opened with such strong selling pressure that it triggered the 7% threshold almost immediately. These pauses did offer some breathing room. In most cases, they helped stabilize the slide temporarily.
Before 2020, the system hadn’t been triggered since 1997, proving these events are rare. Even during the 2008 financial crisis, single-day losses never crossed the necessary thresholds for a full market halt.
Why Circuit Breakers Matter
Circuit breakers give the market time to recalibrate. When headlines spark fear, or when large institutional players start selling off quickly, halts prevent a freefall driven by panic rather than logic. This can be accelerated by AI or automatic trading systems.
These short pauses are meant to restore order, not interfere. They don’t stop the market from falling, but they can ease the speed of that fall. Traders and institutions use the time to adjust algorithms, place orders with more care, or simply process new developments. For everyday investors, the existence of circuit breakers is a form of guardrail.
While circuit breakers are a well-known tool to traders and professionals, many regular investors don’t know they exist, until they’re triggered. That’s part of the design. They are safety nets, not everyday features of the market.
Long-term investors don’t need to worry about circuit breakers changing their overall strategy. But knowing how they work can ease fears during volatile sessions. A sudden trading halt isn’t a sign of collapse—it’s the system doing its job.
Final Thoughts
With the current uncertainty over tariffs, the market has dropped almost 10% in just two days of trading. If the volatility accelerates, we could see these circuit breakers triggered.
These circuit breakers won’t change the overall stock market hours, but could rattle an individual trading strategy.
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