Understanding US Market Circuit Breakers: A Trader's Essential Guide

Market volatility has hit fever pitch recently. The Cboe Volatility Index (VIX) surged past 60 intraday—its highest level since April 2020—as traders grapple with mounting tariff tensions and retaliatory measures. Amid this turbulence, understanding how the US stock market’s automatic trading halts work has become critical for both casual and professional investors.

When stock prices and stock futures plummet rapidly within a single trading session, exchanges don’t let panic run wild. Instead, they activate circuit breakers—mechanical safeguards designed to give markets time to stabilize and prevent the kind of crashes we’ve witnessed historically on Wall Street.

How Market-Wide Circuit Breakers Work

The US relies on three-tiered circuit breaker levels for the S&P 500 Index (SPX), each triggered at different crash thresholds:

Level 1 Activation (7% Drop) When the SPX declines 7% intraday, trading halts for 15 minutes—but only if the drop occurs before 3:25 p.m. ET. If it happens after 3:25 p.m., trading continues unless a more severe level is breached.

Level 2 Activation (13% Drop) A 13% intraday decline in the SPX triggers another 15-minute halt, assuming it occurs before 3:25 p.m. ET. Post-3:25 p.m. drops skip the halt unless Level 3 conditions materialize.

Level 3 Activation (20% Plunge) The ultimate circuit breaker: a 20% intraday collapse of the SPX halts all trading for the remainder of the trading day. These trigger points recalculate daily based on the prior day’s SPX closing price, ensuring the thresholds remain responsive to current market conditions.

Single Stock Circuit Breakers: The LULD Framework

Beyond market-wide halts, the US also implements individual stock circuit breakers through the Limit Up-Limit Down (LULD) mechanism. This system pauses trading in single equities whenever prices breach predetermined “bands” for more than 15 seconds, preventing extreme intraday swings in specific securities.

LULD operates only during regular trading hours (9:30 AM ET - 4:00 PM ET), with the bands widening during the final 25 minutes of the session for certain securities. Two tier classifications determine applicable price bands:

Tier 1 Securities encompass S&P 500 components, Russell 1000 stocks, and select exchange-traded funds. Tier 2 Securities cover all other equities except rights and warrants.

How Price Bands Are Calculated

The LULD Plan establishes trading bands by calculating a “Reference Price”—the arithmetic mean of eligible reported transactions over the preceding five-minute window. On market open, the initial Reference Price equals either the primary market’s opening price or yesterday’s closing price if the market opens on a quote.

This Reference Price updates every 30 seconds when the new price differs by at least 1% from the current figure. If no eligible trades occur within the prior five minutes, the existing Reference Price stays in force.

Once established, percentage parameters are applied to generate actual price bands. These percentages vary based on tier classification and security price:

• Tier 1 and Tier 2 Securities ≤ $3.00 (9:30 a.m. - 3:35 p.m. ET): If the previous closing price exceeded $3.00, bands are ±5%. For securities closing between $0.75 and $3.00, bands widen to ±20%. For those below $0.75, bands equal the lesser of ±$0.15 or ±75%.

• Tier 2 Securities > $3.00 (9:30 a.m. - 4:00 p.m. ET): Bands are set at ±10% of the Reference Price.

• Extended Hours Adjustment: During the final 25 minutes of regular trading (3:35 p.m. - 4:00 p.m. ET), these percentages double for all Tier 1 Securities and Tier 2 Securities priced at or below $3.00.

The actual Upper Price Band equals the Reference Price multiplied by (1 + Percentage Parameter), while the Lower Price Band equals the Reference Price multiplied by (1 - Percentage Parameter). Both values round to the nearest penny.

Historical Precedent: When Breakers Triggered

Since their introduction following the “Black Monday” crash of 1987, market-wide circuit breakers have activated five times in US stock market history:

October 27, 1997 marked the first-ever activation when the Dow Jones Industrial Average (DJIA) experienced a significant decline. The more recent wave occurred in March 2020 during the COVID-19 pandemic’s emergence. On March 9, the SPX fell 7%, triggering a Level 1 halt. March 12 saw a second Level 1 breaker within the same week. March 16 brought a third activation from ongoing pandemic-driven volatility. Finally, March 18 recorded the fourth and most recent activation when the SPX dropped 7% intraday, prompting another 15-minute trading suspension.

Individual stock circuit breakers tell a similar story. Since LULD’s 2012 rollout, single-stock trading pauses have spiked during high volatility periods. March 2020 proved particularly dramatic—over 28% of NYSE and Nasdaq-listed stocks experienced LULD pauses that month, compared to just 1.4% in January. On June 3, 2024, the New York Stock Exchange investigated a technical LULD glitch affecting stocks like Abbott Laboratories, Berkshire Hathaway, and GameStop. Most recently, March 21-23, 2025 saw halts in securities including NeuroSense Therapeutics Ltd (NASDAQ:NRSN), Akanda Corp (NASDAQ:AKAN), and JX Luxventure Ltd (NASDAQ:JXG) following rapid price movements.

These safeguards exist for a reason: to inject sanity into chaotic market moments and protect traders from catastrophic moves they’ll later regret.