Trading halts and circuit breakers are designed to protect markets during periods of extreme volatility. When prices move too quickly or unpredictably, exchanges can temporarily pause trading to slow down panic-selling, give investors time to process new information, and maintain fair and orderly markets. These mechanisms affect both entire markets and individual stocks.
1. What Is a Trading Halt?
A trading halt is a temporary pause in trading activity implemented by an exchange. During a halt, buying and selling stop for a set period, giving the market time to absorb significant news or price swings.
Trading halts can occur for several reasons, including:
-
Extreme volatility
-
Order imbalances
-
Major news releases, such as earnings or merger announcements
-
Technical issues at an exchange
A halt does not necessarily mean something is wrong—it often serves as a stabilizing tool.
2. Market-Wide Circuit Breakers
Market-wide circuit breakers apply to the entire market and are triggered when broad indices fall sharply within a single session.
The infographic on page 2 shows how these rules resemble electrical circuit breakers—if the “system” overheats, trading stops temporarily to prevent damage.
Current circuit breaker levels for a major U.S. index are:
-
Level 1: 7% drop → 15-minute halt
-
Level 2: 13% drop → 15-minute halt
-
Level 3: 20% drop → trading stops for the rest of the day
Levels 1 and 2 will not trigger after 3:25 p.m. ET, meaning the market is allowed to close normally.
These rules were strengthened after past events such as the 1987 crash and have been used multiple times, including during the March 2020 COVID-19 sell-off, where several Level 1 halts occurred within the same month.
Images on page 2 show the sequence of each level, reinforcing how declines activate pauses at set thresholds.
After a halt ends, the next price may differ significantly from the previous one. This is known as a price gap, shown visually on page 2 where markets reopen at a different level than where they paused.
3. Single-Security Circuit Breakers (Limit Up–Limit Down)
Single-security circuit breakers apply to individual stocks or ETFs and are part of the Limit Up–Limit Down (LULD) system. These halts prevent trades from occurring outside predefined price bands, which are designed to reduce extreme moves in a single asset.
The table on page 3 shows how these price bands work:
-
Tier 1 securities (large index constituents and certain funds) use a 5% band above $3.
-
Tier 2 securities use 10%, 20%, or larger thresholds depending on price.
-
Bands widen near the market close, shown in the table’s “market close” column.
If a stock moves outside its band for more than 15 seconds, trading pauses for 5 minutes.
For example, the file describes a stock at $50 experiencing a rapid drop due to negative news. If the decline exceeds the lower band, a 5-minute halt is triggered to slow the move and allow information to settle.
4. Impact on Options Trading
Options trading depends on accurate and active pricing of the underlying stock or ETF.
If the underlying security is halted, options on that security typically halt as well because accurate price discovery becomes impossible.
However, you can still:
-
Exercise options
-
Cancel open orders
Options resume trading once the underlying stock begins trading again and shows updated quotes.
The graphic on page 3 illustrates this relationship, showing how calls and puts pause when the stock does.
5. What You Can Do During a Trading Halt
A halt may pause the market, but it doesn’t pause your decision-making. The final page outlines steps investors can take during these periods.
Assess Market News
Use the halt as a chance to understand what caused the disruption. News announcements, index drops, or sector-specific events often explain the movement.
Review Your Portfolio
If a stock you own is halted, consider whether the catalyst affects your long-term view. Halts often accompany major shifts in sentiment, so reviewing your thesis can be helpful.
Prepare for Trading to Resume
Halt durations are usually short. Before trading resumes, review:
-
Your open orders
-
Your available balances
-
Any pending instructions
Being prepared helps you act confidently once trading restarts.
Trading halts are designed to create order during chaos. Understanding how they work—and what to do when they occur—allows you to stay informed, patient, and disciplined during volatile market conditions.
Welcome to the future of investing with Stockbit.ai