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What Is the Purpose of an Exchange’s “Circuit Breaker” Mechanism during Extreme Order Flow?

Automatically halts trading when prices move excessively to prevent panic, allowing market makers to restore liquidity and re-quote prices.
Greeks.Live10.11.25

What Is the Purpose of an Exchange’s “Circuit Breaker” Mechanism during Extreme Order Flow?

A circuit breaker is a pre-defined mechanism that automatically halts trading for a short period when prices move beyond a certain threshold in a short time. Its purpose is to prevent panic selling or buying, giving market participants time to assess the situation and allowing market makers to re-quote prices and restore liquidity.

This intervention aims to reduce volatility and prevent cascading failures.

What Is a ‘Circuit Breaker’ and How Is It Designed to Prevent Flash Crashes?
How Does a ‘Circuit Breaker’ Mechanism Function in a Decentralized Exchange?
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What Is the Term for the Maximum Allowable Price Fluctuation in a Trading Day?

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