In Finance, What is a Circuit Breaker?
Circuit breakers are strategies or measures that are employed by a stock exchange when there is a need to avert a sense that something catastrophic is about to happen. Sometimes referred to as a collar, the purpose of the circuit breaker is to prevent a panic situation that results in a lot of investors dumping an extreme amount of securities because there is a feeling of an impending crash or significant depression in the market. Essentially, the circuit breaker helps to form a stopgap that keeps a stock exchange on a more even keel until a more reasonable mindset prevails among the traders. The most common configuration for a circuit breaker is to initiate a carefully crafted series of trading halts with a sprinkling of price limits. Generally, the price limits are focused on derivative markets and equities. By creating this temporary status of slowing down, there is a better chance for the commodity exchange process to continue within healthy levels, and not run out of control. As a
