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Stocks, ETFs, and Equities Macro · T+1 Settlement and Equity Mechanics

Circuit breakers: when the market hits pause

Explain market-wide circuit breakers and the three trigger levels.

3 min read+25 XPLesson 14 of 55
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Stocks, ETFs, and Equities Macro

T+1 Settlement and Equity Mechanics

Lesson 14 of 5525%
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Lesson 14 of 55Stocks, ETFs, and Equities MacroT+1 Settlement and Equity Mechanics

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Explain market-wide circuit breakers and the three trigger levels.

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The brakes on a falling market

On Black Monday in October 1987, the Dow fell 22.6% in a single day with no mechanism to slow the panic. After that crash, regulators built market-wide circuit breakers — automatic timeouts triggered when the S&P 500 falls a set percentage from the prior day's close. The system has three levels, each one more severe.

Wick reads a headline that the S&P 500 fell 7% and the market paused while the practice chart drops, teaching the Level 1 circuit breaker.MARKET NEWSS&P 500 down7%: marketpausesPractice chart?
Wick saysA 7% drop in the S&P 500 triggers a 15 minute pause so panic cannot feed itself.

Level 1 fires at a 7% drop in the S&P 500. The entire US equity market halts for 15 minutes. Level 2 fires at 13%. Another 15-minute halt. Level 3 fires at 20% at any point in the day. The market closes for the rest of the session — no more trading until the next morning. Level 1 and Level 2 only trigger before 3:25 PM Eastern. After that, the market rides out whatever happens into the close.

The most recent time circuit breakers fired was March 2020 during the COVID crash. The market hit Level 1 on four separate trading days in a single month. Each halt lasted 15 minutes, then trading resumed. None of those days hit Level 2 or Level 3, but the experience was a useful stress test of the system.

Wick points at a practice chart with a gap between Halt starts and Reopen gap, teaching that queued stops can fill at a gapped price.Practice: after a haltPractice chartReopen gapHalt starts
Wick saysStops wait during a halt and fill after reopen, which can be far from your price.

What does this mean for you? Three things. One, if you have a stop-loss order during a circuit breaker halt, it does not execute during the halt — it queues until reopen. Reopens often gap dramatically. Two, options can lose all liquidity during a halt; bid-ask spreads explode. Three, the halt itself is sometimes the bottom. Markets often bounce off the panic that triggered the breaker, because the pause gives everyone a chance to breathe.

Wick shows a clock with an arc for L1 and L2 from the open to 3:25 PM and a No pause arc until 4 PM, teaching when circuit breakers can fire.2461218L1 and L2No pauseHours in ET
Wick saysLevel 1 and 2 pauses only happen before 3:25 PM. After that, the market rides to the close.

Recap: Level 1 at -7%, Level 2 at -13%, Level 3 at -20% closes the day. Built to stop panic from feeding itself. Reset daily. Your stops queue during halts and reopen prices can gap.

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1. The S&P 500 has fallen 8% by 1pm ET. What happens?

2. You have a stop-loss order on SPY at $400. The market hits Level 1, halts trading. What happens to your stop?

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