Circuit Breaker
Categories: Trading, Regulations, Metrics
In electricity stuff (yes, that's the technical name for it), circuit breakers make sure your house doesn't blow up or burn down if too much juice is being used. If you try to, say, dry your hair while the air conditioner is going and all the lights are on and you have a space heater running in that one corner that gets a little too chilly when the AC is at full blast and, at the same time, the toaster oven is finishing off your morning cinnamon toast, then some electricity thing in the wall (yes, that's the technical name for it) will turn off the electricity to everything, so that a wire doesn't go "poof" in the wall and light everything on fire.
The same kind of thing happens in the financial market. In an effort to keep the stock market from going from "Wow, there are a lot of sell orders today" to "Oh my god! Dump everything! AHHHHHHH," there are rules in place that halt trading if stocks move too much, too fast.
These precautions are known as circuit breakers, or collars (as you might use a collar to rein in your barking dog), or trading curbs (like how curbs keep you from sliding off into the ditch when you're trying to parallel park).
The circuit breakers are set to go off at various levels, providing a temporary halt in trading. They get tripped by a decline of 7%, 13%, or 20% in the S&P 500 compared to the previous day's close.
