Market-wide circuit breaker
A market-wide circuit breaker halts trading in every US stock when the S&P 500 falls a set percentage below the previous day's close. Since 8 April 2013 the levels are 7%, 13% and 20%: the first two stop trading for 15 minutes if they hit before 3:25 p.m. ET, and the third closes the market for the rest of the day.
Why it matters to a small-cap momentum trader
Small caps live on their own news, but on a day the whole market breaks, everything sells together and liquidity disappears from the thin names first. A market-wide halt freezes every position at once, including the small cap you are holding, and the reopen can be violent. Knowing where the levels sit on the morning of a sharp sell-off tells you how close the market is to stopping.
The rule
Reference. The S&P 500's closing value on the previous trading day. The three levels are recalculated every day from it.
| Level | Decline | Before 3:25 p.m. ET | At or after 3:25 p.m. ET |
|---|---|---|---|
| Level 1 | 7% | 15-minute halt | No halt |
| Level 2 | 13% | 15-minute halt | No halt |
| Level 3 | 20% | Halt for the rest of the day | Halt for the rest of the day |
Once a day. Level 1 and Level 2 can each halt the market only once in a day. After a Level 1 halt, trading continues past 7% until the decline reaches 13%.
Regular hours only. The breakers watch the index from 9:30 a.m. to 4:00 p.m. ET. A fall in the pre-market does not halt anything.
On Nasdaq's halt list the halts carry the codes MWC1, MWC2 and MWC3. They sit on top of the single-stock rules: a stock can still have its own LULD pauses on the same day.
The rule depends on the date
- Before 8 April 2013: the levels were 10%, 20% and 30% of the Dow Jones Industrial Average, set once a quarter, and the halts ran 30 minutes, an hour or two hours depending on the level and the time of day.
- From 8 April 2013: 7%, 13% and 20% of the S&P 500, set daily, with the 15-minute halts and the 3:25 p.m. cutoff in the table above.
Level 1 halts came on several days in March 2020, the most recent market-wide halts as of this page's date.
Circuit breakers in Hindsight Markets
Every halt in a replay, single-stock or market-wide, comes from the exchanges' own halt messages for that day, not from a model. While a stock is halted, market orders do not fill and resting orders stay on the book until it reopens.
A worked example: the three levels
An illustration with a round number, not a real day.
Prior close. The S&P 500 closed at 5,000 yesterday.
Level 1. 5,000 × (1 − 0.07) = 4,650. A fall to 4,650 at 11:00 a.m. halts the market for 15 minutes.
Level 2. 5,000 × (1 − 0.13) = 4,350. If the selling resumes after the Level 1 halt and reaches 4,350 at 1:00 p.m., another 15-minute halt.
Level 3. 5,000 × (1 − 0.20) = 4,000. At any time of day, trading stops until the next day.
Late in the day. Had the Level 1 fall come at 3:30 p.m. instead, past the 3:25 cutoff, trading would have carried on.
Common mistakes traders make with circuit breakers
- Measuring from the open. The levels come from yesterday's close of the index, not from today's open or from any single stock.
- Using the Dow. Since 2013 the reference is the S&P 500. The Dow can be down more or less than 7% when the halt comes.
- Expecting a halt after 3:25 p.m. Late in the day only Level 3 stops the market. A 7% fall at 3:30 p.m. keeps trading.
- Holding size into a sell-off with no plan. A halt freezes every stop. On a day the index is near a level, trade smaller.
Common questions
- What are the market-wide circuit breaker levels?
- 7%, 13% and 20% below the S&P 500's previous close. Level 1 and Level 2 halt trading for 15 minutes before 3:25 p.m. ET; Level 3 halts it for the rest of the day.
- How long does a market-wide circuit breaker halt last?
- Fifteen minutes for Level 1 or Level 2 when triggered before 3:25 p.m. ET. A Level 3 halt lasts for the rest of the trading day.
- When was the last market-wide circuit breaker?
- As of this page's date, the most recent were the Level 1 halts on several days in March 2020.
- Do circuit breakers apply to the pre-market?
- No. They watch the S&P 500 during regular hours, 9:30 a.m. to 4:00 p.m. ET. A fall in index futures overnight does not halt stock trading.
- What is the difference between a circuit breaker and a LULD pause?
- A circuit breaker halts the whole market on a fall in the S&P 500. A LULD pause stops one stock for five minutes when its own price reaches its band.
How to practise it in Hindsight Markets
- Open a past trading day with a broad sell-off and pull up SPY, the fund that tracks the S&P 500.
- Work out the three levels from the index's prior close. Chg in the Level 2 header shows SPY's move from its own prior close, a close stand-in for the index.
- Trade small caps that morning and watch how much faster their books thin out than SPY's.
- Practise the halt itself on a single-stock halt: the Level 2 header shows H, the chart shades it, and your resting orders wait for the reopen.
- Open the journal and compare Most against you on that day's trades with an ordinary day.
Practice this on a real past day in Hindsight Markets
Replay a volatile day, work out the three circuit-breaker levels from the prior close, and practise trading a market that can stop.