Market StructureIntermediate#Risk Management#Exchange
Circuit Breaker
C
Definition
A market mechanism that halts trading when prices move too quickly, preventing panic selling and giving participants time to reassess.
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Concept Diagram
Key Takeaways
1
Circuit breakers halt trading during extreme moves, preventing cascading liquidations.
2
Typical trigger: 10% price drop in 30 minutes results in a 10-minute halt.
3
Crypto exchanges have their own rules; DeFi uses smart contract emergency pauses.
4
Controversial: prevents flash crashes but can trap traders and interfere with price discovery.
Practical Example
BTC drops from $100,000 to $89,000 in 20 minutes (11%). Binance's circuit breaker triggers — all BTC trading halts for 10 minutes. When trading resumes, price opens at $91,000 after an auction, preventing further cascade.
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