Key takeaways
- Market-wide circuit breakers halt trading across US markets after a single-day fall in the S&P 500 of 7% (Level 1), 13% (Level 2) or 20% (Level 3).
- A Level 1 or 2 trigger before 3:25 p.m. ET halts trading for 15 minutes; at or after 3:25 p.m. it does not. Level 3 closes the market for the rest of the day.
- Limit Up–Limit Down stops individual stocks trading outside price bands around their average price over the previous five minutes.
- If a stock reaches its band and does not return within 15 seconds, trading pauses for five minutes.
- Market-wide halts were triggered four times in March 2020; halts can affect when stop orders and other orders execute.
On a normal day, US stocks trade continuously from the 9:30 a.m. opening bell to the 4:00 p.m. close. On a day of extreme falls, trading can stop. Two separate mechanisms do this: market-wide circuit breakers, which halt everything when the whole market drops sharply, and Limit Up–Limit Down, which pauses an individual stock that moves too far too fast. Investor.gov describes LULD as designed to prevent large, sudden price moves in a stock, and Wikipedia's history of circuit breakers says their original intent was to allow time for communication between traders.
Where circuit breakers came from
According to Wikipedia's article on trading curbs, US circuit breakers were introduced from January 1988, weeks after the Black Monday crash of 19 October 1987. The Brady Commission, set up to investigate the crash, found that the regulator chosen to monitor equity markets should design and implement price limit systems known as circuit breakers. Their original intent was not to prevent dramatic but fair price swings, but to allow time for communication between traders. The first time US markets closed early because of trading curbs was on 27 October 1997, after a 550-point fall in the Dow Jones Industrial Average. Since then, the system has moved from Dow points to percentage falls in the S&P 500.
The three market-wide levels
Investor.gov explains the current rules. Market-wide circuit breakers are measured by a single-day fall in the S&P 500 Index from the previous day's close:
| Level | Fall in the S&P 500 | Before 3:25 p.m. ET | At or after 3:25 p.m. ET |
|---|---|---|---|
| 1 | 7% | Trading halts for 15 minutes | No halt |
| 2 | 13% | Trading halts for 15 minutes | No halt |
| 3 | 20% | Trading halts for the rest of the day | Trading halts for the rest of the day |
The trigger levels are set daily from the previous close. A worked example: if the S&P 500 closed at 6,000 yesterday, today's triggers would sit at 5,580 (−7%), 5,220 (−13%) and 4,800 (−20%). The halts are coordinated across the securities and futures exchanges, so the whole market stops at once. What a stock market index is explains how the S&P 500 is built.
When they have been triggered
Wikipedia records four Level 1 halts in March 2020, during the sell-off at the start of the COVID-19 pandemic. On 9 March, as the Dow fell 7.79%, the S&P 500 triggered a 15-minute halt moments after the open. Early trading tripped Level 1 again on 12 and 16 March, when the market dropped more than 7%, and on 18 March the breaker was triggered at about 1 p.m., several hours after the open.
Limit Up–Limit Down for single stocks
Limit Up–Limit Down (LULD) works stock by stock. Investor.gov describes it as a volatility moderator that prevents trades in an individual security outside a specified price band, set above and below the stock's average price over the immediately preceding five minutes. If the price moves to a band and does not move back within 15 seconds, trading in that stock pauses for five minutes.
The width of the band depends on the stock's tier and price, according to the LULD Plan:
| Stock | Price | Band, regular hours |
|---|---|---|
| Tier 1 (all S&P 500 and Russell 1000 stocks, select ETPs) | Above $3.00 | 5% |
| Tier 1, and Tier 2 stocks at $3.00 or below | $0.75 to $3.00 | 20% |
| Tier 1, and Tier 2 stocks at $3.00 or below | Below $0.75 | The lesser of $0.15 or 75% |
| Tier 2 (other NMS stocks) | Above $3.00 | 10% |
The bands double during the last 25 minutes of the regular trading day for all Tier 1 stocks and for Tier 2 stocks at $3.00 or below. LULD applies during regular trading hours, 9:30 a.m. to 4:00 p.m. ET.
The plan's own illustration: a Tier 1 stock that closed at $25 the previous day starts with bands 5% either side, at $26.25 and $23.75.
What halts mean for your orders
Halts do not cancel the market's risk; they interrupt it. Practical consequences:
- Orders wait. While a stock or the market is halted, trading has stopped, so orders do not execute, and the first price after the halt may differ from the last one before it.
- Stop orders can fill far from the stop price. A stop becomes a market order when triggered, so a gap after a halt can produce a fill much lower than expected; stop versus stop-limit orders explains the difference.
- Extended hours are different. LULD applies during regular hours; stock market hours covers the sessions outside them.
Market-wide halts are the extreme end of volatility; the slower swings of bull and bear markets are covered separately. Learn to Trade Stocks Beginner, one of our education apps, lets you practise with virtual money, so a simulated gap costs nothing. The investing basics hub lists related guides.
Good to know
Frequently asked questions
What happens when the stock market drops 7%?
What are the three circuit breaker levels?
Why did a single stock stop trading for five minutes?
When were the market-wide circuit breakers last triggered?
Sources
- Stock Market Circuit Breakers (glossary) (opens in a new tab)Investor.gov, U.S. Securities and Exchange Commission — accessed
- Limit Up Limit Down Plan (opens in a new tab)LULD Plan Participants — accessed
- Trading curb (opens in a new tab)Wikipedia — accessed
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