Circuit Breakers: Emergency Brakes for the Stock Market

On Wall Street, "circuit breakers'' refer to stock market trading halts that prevent markets from spiraling out of control when prices drop too quickly. These circuit breakers indicate excessive short-term volatility, but they shouldn't worry long-term investors.

According to NYSE President Stacey Cunningham, circuit breakers "are designed to slow trading down for a few minutes, to give investors the ability to understand what's happening in the market, consume the information and make decisions based on market conditions."

You might remember the successive circuit breakers that hit stocks in March of 2020. Amid growing uncertainty about the COVID-19 pandemic, markets endured a series of crashes that set off circuit breakers four times over two weeks. Prior to that, marketwide circuit breakers like that hadn't been used for over 20 years.

Source Fool.com