Trading halts and circuit breakers: how they work and what they mean for CFDs

A trading halt is a temporary stop in trading of a single security or a whole market, and a circuit breaker is a rule that triggers such a halt automatically when prices move too far, too fast. In the US, all stock trading pauses for 15 minutes if the S&P 500 falls 7% or 13% from the previous day's close before 3:25 pm New York time, and stops for the rest of the day if it falls 20%. Individual shares have their own automatic pauses, and exchanges can also halt a stock for pending news or a regulatory concern.

For a CFD trader the important part is what happens downstream. When the underlying market stops, the CFD usually stops too, orders do not execute, and the price often gaps when trading restarts. This guide covers the rules and then the practical consequences.

Why circuit breakers exist

Circuit breakers are a response to crashes in which selling fed on itself faster than buyers could respond. In the US, the first market-wide circuit breakers were introduced after the crash of 19 October 1987. A second wave of rules followed the "flash crash" of 6 May 2010, when US share prices fell sharply and recovered within minutes, and some individual stocks traded at absurd prices for a few moments.

The idea is simple. A pause gives participants time to absorb information, re-enter orders and restore liquidity on both sides of the book. Critics argue that halts can make things worse by trapping traders and encouraging people to sell before a threshold is reached. Both views have support, and regulators have adjusted the rules over time rather than abandoning them. For a trader, the practical point is that halts exist and you need to plan for them.

US market-wide circuit breakers

The US market-wide circuit breaker rules apply across all US stock exchanges and options markets, and the futures exchanges coordinate their own limits with them. They are based on the S&P 500 index and measured against its previous day's closing level.

• Level 1: a 7% fall. If it happens before 3:25 pm New York time, trading halts for 15 minutes. At or after 3:25 pm, trading continues.
• Level 2: a 13% fall. Same rule: a 15-minute halt if before 3:25 pm, no halt after.
• Level 3: a 20% fall. Trading halts for the rest of the day, whenever it happens.

Each of Level 1 and Level 2 can only trigger once a day. There is no equivalent for rises; the rules only cover falls.

These levels have applied since 2013, replacing an older system based on Dow Jones Industrial Average points. Under the older rules, a market-wide halt was triggered once, on 27 October 1997. Under the current rules, Level 1 was triggered four times in March 2020, on 9, 12, 16 and 18 March, as markets reacted to the spread of Covid-19. Level 2 and Level 3 had not been triggered as of the time of writing.

Worked example: where the levels sit

Illustrative numbers only. The S&P 500 closed yesterday at 5,000.00.

• Level 1 is 7% below: 5,000 × 0.93 = 4,650.00.
• Level 2 is 13% below: 5,000 × 0.87 = 4,350.00.
• Level 3 is 20% below: 5,000 × 0.80 = 4,000.00.

If the index trades down to 4,650.00 at 10:15 am New York time, trading in US shares stops until about 10:30 am. If it reaches that level at 3:40 pm, nothing happens unless the fall extends to 4,000.00.

What happens to index futures

S&P 500, Nasdaq 100 and Dow futures trade on CME almost around the clock. During US cash hours, CME's price limits are coordinated with the market-wide levels, so a Level 1 or Level 2 halt in shares also halts the equity index futures for the same period, and a Level 3 halt stops them for the rest of the day.

Outside US cash hours, when there is no stock market to halt, the futures have their own price limits. CME's published rules set an overnight limit (7% up or down at the time of writing) beyond which the contract cannot trade, although trading continues within the limit; CME also has short dynamic pauses for very fast moves. When a contract is "limit down" overnight, buyers and sellers can still trade at or above the limit, but not below it. Exact parameters change from time to time, so check the exchange's current price limit guide.

Single-stock halts in the US

Limit Up-Limit Down (LULD)

Each US-listed stock and ETF has a price band around a reference price based on its recent trading, recalculated through the day. For larger, more liquid securities (Tier 1, including S&P 500 and Russell 1000 constituents and some ETPs) priced above 3 dollars, the band is 5% either side. For other securities above 3 dollars it is 10%, and it is wider for lower-priced stocks. Bands are doubled near the close for many securities.

If the best bid or offer reaches the edge of the band, the stock enters a "limit state". If it does not move back within 15 seconds, the primary listing exchange declares a five-minute trading pause, followed by a reopening auction. On very volatile days, dozens or even hundreds of individual stocks can be paused under LULD while the overall market keeps trading.

LULD was introduced after the 2010 flash crash and was phased in from 2013. It applies during regular trading hours only.

News and regulatory halts

Separately from automatic pauses, the listing exchange can halt a stock when material news is pending, for example while a company prepares to announce a takeover, a major legal ruling or results released mid-session. These halts are usually short; the stock reopens with an auction once the news is out. The exchange can also halt a stock if it has questions about the company's disclosures or compliance with listing rules.

The US Securities and Exchange Commission can suspend trading in a security for up to ten trading days when it believes the public interest requires it, typically when there are concerns about the accuracy of information about the company. Such suspensions mostly involve small, thinly traded companies, but they show that a halt can last much longer than a few minutes.

Europe and the UK: volatility auctions, not market-wide halts

European exchanges generally do not have an S&P-style market-wide circuit breaker. Instead, they control volatility stock by stock. Under MiFID II, trading venues must have mechanisms to temporarily halt or constrain trading when prices move significantly, and they calibrate these themselves.

• Volatility interruptions. On many continental exchanges, if a share's next trade would fall outside a static or dynamic price range around a reference price, continuous trading in that share is interrupted and an auction begins. The auction lasts a few minutes, sometimes extended, before continuous trading resumes at the auction price. On Deutsche Börse's Xetra these are called volatility interruptions.
• Price monitoring extensions. On the London Stock Exchange, auction-based mechanisms similarly pause continuous trading in a security when it moves beyond set thresholds, and an extended auction period gives time for orders to arrive.
• Suspensions. National regulators and exchanges can suspend a share, for example pending an announcement, when a company fails to publish its accounts, or in insolvency. A suspension can last days, months, or end in delisting.

Index futures such as DAX and Euro Stoxx 50 futures on Eurex have their own volatility controls. Because there is no market-wide stop, a European index can keep trading through a sharp fall while individual constituents briefly move into auctions. Some index calculations use the last traded price of an interrupted share in the meantime.

Elsewhere

Other markets have their own systems. Several Asian exchanges have market-wide circuit breakers or daily price limits on individual shares. China introduced an index-level circuit breaker in January 2016 and suspended it within days after it was triggered twice in the first week, a well-known example of a design that many observers argued made selling worse by encouraging traders to get out before the threshold. If you trade a market regularly, read its exchange's rules.

What a halt means for your CFD

CFDs are priced from the underlying market or from its futures. When the source of the price stops, the CFD provider has nothing reliable to quote. The details are in each provider's terms, but the common patterns are these.

Share CFDs

• Trading in the CFD is suspended while the share is halted. You cannot open or close, and your pending orders, stop losses and take-profit orders cannot execute because there is no price.
• The position stays open and continues to be marked at the last price. Overnight financing continues to accrue if the halt crosses the cut-off.
• When trading resumes, the price can gap. The reopening auction may print far from the last price. Stop orders are then filled at the first available price, which can be much worse than the stop level, as explained in gap risk and weekend risk and slippage explained. Only a guaranteed stop loss, where offered, protects the level.
• Margin may increase. For a suspended share, especially one suspended for a long time, many providers raise the margin requirement, sometimes to 100% of the position value, because the eventual reopening price is unknown. That can push your account towards a margin call or stop-out on other positions.
• Long suspensions and delisting are handled under the provider's terms. The provider may keep the position open until the share trades again, or close it at a price it determines, which in a corporate collapse can be close to zero.

Index CFDs

• During US cash hours, a Level 1 or 2 market-wide halt also halts the index futures, so US index CFDs usually stop quoting for the 15-minute pause. They resume with the futures, often with a jump.
• Outside cash hours, index CFDs follow the futures. If the futures hit their overnight limit, the CFD quote may stop moving at a level that does not reflect where the market would trade without the limit; some providers suspend quoting entirely. When the cash market opens and the limits change, the CFD can move sharply.
• European index CFDs usually keep trading through constituent-level volatility auctions, because the futures keep trading.

Worked example: a halt on a share CFD

Illustrative numbers only. You are long 200 CFDs on a US share at 50.00 dollars, with a stop loss at 47.50 dollars, risking 500 dollars (200 × 2.50). The company's shares are halted at 49.20 dollars pending news. Forty minutes later the share reopens at 41.00 dollars after a disappointing announcement.

• Your stop could not execute during the halt.
• When trading resumes, the stop is triggered and filled at or near the first available price, say 40.90 dollars.
• Your loss is 200 × (50.00 - 40.90) = 1,820 dollars, more than three and a half times the 500 dollars you planned to risk.

The position size calculator assumes your stop fills at its level. With single shares around news, it is prudent to assume it might not, and to size smaller. The guide to short selling stocks covers the opposite case, where a halted share reopens sharply higher against a short position.

How to prepare as a trader

You cannot predict when a halt will happen, but you can reduce how much it hurts.

• Know which halts apply to what you trade. US single stocks and US indices have different rules from European ones, and futures have their own limits outside cash hours.
• Size for gaps, not for your stop. For positions held through earnings or other scheduled news, assume the stop might fill well beyond its level. The earnings season guide covers when such announcements fall.
• Keep spare margin. If a provider raises margin on a halted position, the extra requirement comes out of your free margin. An account run close to its limit has no room for that.
• Read your provider's terms. Look for how they handle suspended instruments, what happens to orders, and how they price positions in a long suspension or delisting.
• Avoid concentrated exposure to one small company. Long suspensions and regulatory halts are most common among small and thinly traded shares.
• Watch the clock in the US. The 3:25 pm cut-off for Level 1 and 2 means the last 35 minutes of the US session have no 7% or 13% halt.

Common mistakes

• Assuming a stop loss fixes the exit price. During a halt it cannot execute, and after one it fills at the next available price.
• Thinking circuit breakers put a floor under prices. A halt pauses trading; it does not stop prices falling further when trading resumes, and Level 3 simply ends the day.
• Confusing market-wide and single-stock rules. A single share can be paused under LULD many times on a day when the index never comes close to 7%.
• Expecting European markets to halt like the US. European exchanges use stock-level auctions; an index can keep falling without a market-wide stop.
• Ignoring futures limits overnight. A US index CFD may freeze or stop updating when futures are limit down outside US hours; the move continues when limits change.
• Forgetting about financing during a long suspension. A suspended CFD can keep accruing overnight charges while you are unable to close it.

Frequently asked questions

What are the US circuit breaker levels?

They are based on the S&P 500's fall from the previous close. A 7% fall (Level 1) or 13% fall (Level 2) halts US stock trading for 15 minutes if it happens before 3:25 pm New York time. A 20% fall (Level 3) halts trading for the rest of the day at any time. There are no circuit breakers for rises.

Have the US market-wide circuit breakers ever been triggered?

Under the current rules, Level 1 was triggered on four days in March 2020: 9, 12, 16 and 18 March. Under the older Dow-based rules, a market-wide halt happened on 27 October 1997. Levels 2 and 3 have not been triggered under the current system as of the time of writing.

What is a Limit Up-Limit Down pause?

It is an automatic pause for a single US stock or ETF. Each security has a price band around its recent average price, 5% either side for larger stocks above 3 dollars. If the stock stays at the edge of its band for 15 seconds, trading pauses for five minutes and then reopens with an auction.

Can I close my CFD while the underlying is halted?

Usually not. The provider has no reliable price to quote, so trading in the CFD is suspended along with the underlying, and pending orders cannot execute. The position remains open at the last price until trading resumes, and it may then gap. Check your provider's terms for exceptions.

Do European stock markets have circuit breakers?

Not market-wide in the US sense. European exchanges use stock-level mechanisms such as volatility interruptions and auctions, which pause continuous trading in a single share when it moves outside a set range, and regulators or exchanges can suspend individual shares. Index futures have their own volatility controls.

Why did my broker raise margin on a suspended share CFD?

Because nobody knows where the share will reopen. A long suspension can end with a price far from the last trade, or with delisting. Raising margin, sometimes to 100% of the position value, protects the provider against that uncertainty. The extra margin reduces your free margin, so check your account if you hold other positions.