How Do Circuit Breakers Mitigate Volatility Risk on Futures Exchanges? ▴ Learn

How Do Circuit Breakers Mitigate Volatility Risk on Futures Exchanges?

Circuit breakers are automated mechanisms that temporarily halt trading or restrict price movements when volatility exceeds predefined limits. By pausing trading, they allow the market to stabilize, giving traders time to assess their positions and add margin, thereby reducing the likelihood of a liquidation cascade and the need for the insurance fund or ADL.

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