Circuit Breakers: What Happens When Markets Hit the Brakes

Big drops can trigger market-wide trading halts. Here's how the 7% / 13% / 20% system works and how to trade around it responsibly.

Why circuit breakers exist

Market-wide circuit breakers are coordinated trading halts designed to slow down panic selling and give participants time to process information during extreme moves.

The three U.S. market-wide levels

In the U.S., market-wide circuit breakers are triggered off declines in the S&P 500 at 7%, 13%, and 20% from the prior close.

What it means for you

• Execution risk: If a halt occurs, your order might not fill when you expect.
• Gap risk: After trading resumes, prices can "jump" as the order book rebalances.
• Stops aren't magic: Stops can fill worse than expected when liquidity is thin or the market reopens.

How to trade sensibly around them

• Reduce leverage when volatility is elevated.
• Use limit orders when spreads widen.
• Don't confuse "halted" with "safe." Risk can increase during uncertainty.