Term · Liquidity & Trading
Circuit Breaker
In briefA circuit breaker temporarily halts or slows trading when prices swing exceptionally sharply. For micro- and small-caps this matters, because low liquidity can accelerate extreme price moves.
Definition
A circuit breaker is a market mechanism that temporarily halts or slows trading when prices move exceptionally strongly.
How it is calculated
Formula. No standard formula; triggered via predefined market or security thresholds.
Why it matters for small caps
Circuit breakers are important for small-caps because low liquidity can accelerate extreme price moves.
Common misreadings
- Circuit breakers are often confused with delisting or fundamental problems, even though they are primarily meant to safeguard market stability.
In the process
Frequently asked
What is a circuit breaker?
It is a protective mechanism that briefly suspends trading during sharp price swings. The aim is to dampen overheated price formation.
How is a circuit breaker triggered?
It kicks in when predefined market or security thresholds are exceeded. The exact triggers depend on the respective trading venue.
Is a circuit breaker a sign of a fundamental problem?
No, it mainly serves market stability. It is wrongly confused with delisting or deep-seated corporate problems.
Related terms
Sources
Primary
EUR-Lex – MiFID II, Richtlinie 2014/65/EU
https://eur-lex.europa.eu/eli/dir/2014/65/oj
https://eur-lex.europa.eu/eli/dir/2014/65/oj
Methodology
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.