It’s hard to predict when a stock market crash will occur, so the best defense is to be prepared.
Today’s infographic comes to us from StocksToTrade.com, and it explains what happens when a large enough drop in the market triggers a “circuit breaker”, or a temporary halt in trading.
These temporary halts in trading, or “circuit breakers”, are measures approved by the SEC to calm down markets in the event of extreme volatility. The rules apply to NYSE, Nasdaq, and OTC markets, and were put in place following the events of Black Monday in 1987.
Circuit Breaker Rules
Previously, the Dow Jones Industrial Average (DJIA) was the bellwether for such market interventions.
However, the most recent rules apply to the whole market when a precipitous drop in the S&P 500 occurs:
| Before Feb 2013 | After Feb 2013 | |
|---|---|---|
| Index Tracked | DJIA | S&P 500 |
| Level 1 Threshold | -10% | -7% |
| Level 2 Threshold | -20% | -13% |
| Level 3 Threshold | -30% | -20% |
Upon reaching each of the two first thresholds, a 15-minute ha
