How Does a ‘Circuit Breaker’ Mechanism Address Extreme Volatility on an Exchange?

A circuit breaker is a temporary halt in trading, triggered when the price of an asset moves beyond a predetermined percentage threshold within a short period. Its purpose is to cool down panic selling or buying, allow the market to absorb new information, and prevent cascading liquidations.

By pausing trading, the mechanism gives traders time to reassess their positions and re-establish market equilibrium.