Tech stocks have taken quite the beating along with a lot of other stocks. We’ve seen historical drops over the last two trading days. Have you wondered what happens if stocks drop more? Is there anything to stop it? Turns out there is the stock market circuit breaker. Let’s chat.
What is a stock market circuit breaker?
The circuit breaker for the stock market is not a literal circuit breaker like in your home, but it is a similar concept.
In your home, if too much current is flowing, the circuit breaker will cut the connection to prevent a fire or damage to the circuit.
In the stock market, if an index measuring stock market value decreases too much at one time, the circuit breaker will stop allowing trades for awhile to prevent further panic.
When will the circuit breaker stop the market?
The circuit breaker will halt trading if the S&P 500 index drops beyond its previous closing value by one of three thresholds: 7%, 13%, and 20%. If the market declines by more than 7% or 13% before 3:25 pm, then trading will stop for 15 minutes. If this happens after 3:25 pm, trading will continue as the trading day ends at 4:00 pm. If the 20% threshold is crossed, then trading is halted for the rest of the day regardless of the time when it happens.
Has the circuit breaker had to stop trading before?
You might remember a few circuit breaker events from 2020. Due to the global pandemic, there was a lot of uncertainty among investors, and the market experienced circuit breakers on March 9th, 12th, 16th, and 18th of that year.
We’ll see tomorrow if the stock market continues to slide or if things will improve.
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