Circuit Breakers: What Happens When the Market Pauses

• Market-wide circuit breakers pause trading when the S&P 500 drops by preset percentages, giving time for information to flow and for traders to regroup.
• During a halt, new orders may be restricted, and existing orders can behave differently than during normal trading; market orders can fill at very poor prices.
• Reopening usually uses an auction process to match buy and sell interest, which can cause wide spreads and volatile prints for minutes or longer.
• Use limit orders or stay on the sidelines during reopenings, and avoid impulsive market orders, which can magnify losses in chaotic conditions.
• Know the three S&P 500 circuit breaker levels (7%, 13%, 20%) and have a simple plan for extreme volatility as part of your portfolio management rules.

Introduction

Circuit breakers are rules that pause trading across the whole market when prices fall sharply. They are designed to slow panic, give everyone time to process news, and let liquidity providers come back before trading resumes. Why does that matter to you? Because a market-wide pause changes how orders execute, how wide bid-ask spreads get, and how quickly prices can jump when trading resumes.

In this article you'll learn what triggers a market-wide circuit breaker, how orders behave during and after a halt, and practical steps you can take to protect your cash and positions. Curious what happens if you click "buy" with a market order during a halt? We'll cover that and give easy rules you can follow when markets get choppy.

What are market-wide circuit breakers?

Market-wide circuit breakers are automatic pause mechanisms tied to a benchmark index, usually the S&P 500. The U.S. stock market currently has three levels: a 7% decline triggers a 15-minute halt (Level 1), a 13% decline triggers another 15-minute halt (Level 2), and a 20% decline stops trading for the rest of the day (Level 3). These percentages are measured from the prior day's close.

The rules were updated after extreme volatility in 1987 and later refined after the 2010 "Flash Crash" and in March 2020, when circuit breakers were triggered multiple times. They are meant to protect market integrity, not to guarantee price stability.

How orders behave during a halt

When the market-wide circuit breaker trips, normal continuous trading stops. That changes how orders are accepted and displayed. Exchanges typically stop matching trades and will either stop accepting new orders, accept a limited set of order types, or route orders to a special auction mechanism for reopening.

Order types and what happens to them

• Market orders: These are instructions to buy or sell immediately at the best available price. During a halt and the immediate reopening, market orders can execute at dramatically worse prices than you expect. Avoid them when volatility is high.
• Limit orders: These specify a maximum buy price or minimum sell price. Most limit orders will remain on the book, but they may not execute if the price gap skips your limit. Limit orders give you price control during chaotic reopenings.
• Stop orders and stop-limit orders: A stop order becomes a market order once its trigger price is hit. In a fast move, that market order can fill at a poor price. A stop-limit order becomes a limit order at the stop price, which can prevent a detrimental fill but may not execute at all.

You should know how your broker handles orders during halts. Some brokers will hold orders until the market reopens or will cancel marketable orders automatically. If you use a mobile app, you may not see all the nuances that a professional trader sees on an exchange screen.

Reopening: auctions, spreads, and volatility

When a halt ends, exchanges typically use a reopening auction to find one clearing price where buy and sell interest match. The auction window collects orders and then determines a single price to reopen trading. That process can reduce erratic prints, but it doesn't eliminate wide spreads or price jumps right after the auction.

Bid-ask spreads, which are the difference between buyers' highest bids and sellers' lowest asks, tend to widen during and after halts. Liquidity providers may step back, meaning there are fewer orders close to the last traded price. That makes it easier for a single large order to move the market sharply.

What you might see on the tape

1. An auction print that sets the reopening price, often accompanied by a one-off high or low print.
2. A flurry of trades immediately after reopening as algorithms and humans react to the new price.
3. Wide quoted spreads and occasional "stale" quotes that disappear because market participants update prices rapidly.

For example, if $SPY reopens after a deep decline, you might see the auction price open far from the last pre-halt trade. At that moment, market orders to buy could fill at the new, higher prints if they were placed expecting narrow spreads. That's why many traders prefer limit orders when volatility is elevated.

Practical rules for investors during market-wide halts

When the whole market pauses, your actions matter. Panic trading can lock in losses or get you into positions you didn't intend. Keep a few simple rules to protect yourself and your portfolio.

• Don't use market orders right after a halt. Use limit orders if you choose to trade, or wait until spreads narrow and volumes recover.
• Have a pre-defined plan. Decide ahead of time how you'll react to big dips. That might include rebalancing boundaries for your portfolio or a checklist to confirm before trading.
• Focus on liquidity. If a company's stock like $AAPL or $TSLA has thin trading after a halt, consider staying out until normal liquidity returns.
• Remember your time horizon. If you're a long-term investor practicing dollar-cost averaging, a temporary pause is unlikely to change your core plan. If you're trading intraday, be prepared for more risk and wider spreads.

Real-world examples: what happened in March 2020 and beyond

In March 2020, during the onset of the COVID-19 pandemic, U.S. market-wide circuit breakers triggered multiple times as the S&P 500 plunged in reaction to economic shutdowns. The halts gave traders time to digest information, yet reopenings still produced big price gaps and volatile prints for several minutes after each pause.

Consider a simplified scenario. Before a halt, $AAPL trades at $120 with a tight $0.05 spread. A sudden risk-off wave pushes the index down and triggers a Level 1 halt. At reopening, the auction clears at $105 because sellers overwhelmed buyers. If you had sent a market buy order immediately after reopening, you might pay $108 or higher because liquidity is sparse. A limit buy at $105 would either execute at your price or not trade, protecting you from overpaying.

Another example: ETFs like $SPY often have more liquidity than smaller stocks. During reopenings, ETFs can still experience wide spreads, but they typically recover faster. That's one reason institutional traders often prefer broad ETFs in volatile conditions.

Common Mistakes to Avoid

• Placing market orders during or immediately after a halt. Why it hurts: you can get a very poor fill. How to avoid it: use limit orders or wait until trading stabilizes.
• Reacting to a single headline without checking the market structure. Why it hurts: you may buy or sell at extreme prices caused by temporary liquidity gaps. How to avoid it: check auctions, quoted spreads, and volume before trading.
• Assuming halts guarantee a return to prior prices. Why it hurts: halts only pause trading, they don't reverse fundamentals. How to avoid it: treat halts as time to review your strategy, not as a signal to act impulsively.
• Not knowing broker rules. Why it hurts: brokers differ in how they handle orders during halts. How to avoid it: read your broker's help pages and practice using limit and conditional orders in normal times.

FAQ

Q: What triggers a market-wide circuit breaker?

A: Circuit breakers are triggered when the S&P 500 declines by a set percentage from the previous close, currently 7% (Level 1), 13% (Level 2), and 20% (Level 3). The first two levels cause 15-minute trading halts, while the third closes markets for the day.

Q: Can I cancel an order during a halt?

A: It depends on your broker and the exchange. Some brokers will allow you to cancel orders if they accepted them during the halt, while others may hold or route them to an auction. Check your broker's rules and avoid placing marketable orders you might regret.

Q: If the market reopens through an auction, will my order always fill?

A: No. Auctions match supply and demand at a single price. If your limit is outside the auction clearing price, your order may not execute. That is one reason traders use limit orders to control fills during volatile reopenings.

Q: Should long-term investors be worried about circuit breakers?

A: For most long-term investors, circuit breakers are a short-term market mechanism to reduce panic. They don't change the long-term fundamentals of businesses. That said, you should have a plan for volatility as part of your portfolio management strategy.

Bottom Line

Circuit breakers pause the entire market to give everyone time to process shocks and reduce immediate panic. While they slow trading, they also change how orders behave, widen spreads, and can produce volatile reopenings. That matters because your order type and timing will strongly affect execution quality in those moments.

Actionable next steps: learn how your broker handles orders during halts, prefer limit or conditional orders over market orders when volatility is high, and write a simple plan for how you'll react to major market pauses. At the end of the day, a cool head and a clear process will serve you better than reacting to the tape in a panic.