US Stock Rules· Lesson 4 of 6· 6 min

Circuit Breakers and LULD

Individual US stocks have no daily price limits, but a 7%, 13% or 20% drop in the broad market triggers a circuit breaker, and a stock that breaks out of its LULD band is paused for a few minutes.

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Text version · US Stock Rules, lesson 4: “Circuit Breakers and LULD”

Individual US stocks have no daily price limits, but a 7%, 13% or 20% drop in the broad market triggers a circuit breaker, and a stock that breaks out of its LULD band is paused for a few minutes.

No daily price limit on individual stocks

Unlike A-shares and Taiwan stocks, US stocks have no price limit: a stock can double or halve in a day, and stocks with big news can swing wildly.

Level 3 market-wide circuit breaker

circuit breaker levels are based on how far the S&P 500 has fallen from the previous close: 7% (Level 1) and 13% (Level 2) before 15:25 halt the whole market for 15 minutes; 20% (Level 3) stops trading for the rest of the day. Level 1 was triggered several times in March 2020.

LULD: a single stock pauses for a few minutes

Individual stocks have Limit Up–Limit Down (LULD): a band is set around the average price of the last few minutes, and if the price breaks out and doesn't come back, the stock pauses for about 5 minutes and then reopens.

Key takeaways

Individual US stocks have no daily price limits; any size of move in a day is possible.
If the S&P 500 falls 7% (Level 1) or 13% (Level 2) from the previous close before 15:25, the whole market pauses for 15 minutes; a 20% drop (Level 3) halts trading for the day.
Each stock has an LULD price band: if the price breaks out of the band and doesn't come back, trading in that stock pauses for about 5 minutes (the band width depends on the stock's tier and price).

Try it yourself

You can do these exercises in this lesson's interactive simulation:

Set the drop to 8% at 11:00: what happens? When does trading resume?
Keep the same drop and drag the time to 15:40: what's different?
Click “Extreme: down 20%”: does the time it happens still matter?
In the LULD simulator, increase the news shock and press ▶: how many minutes is the stock paused? Where does the price go after it resumes?

Quiz and explanations

1. At 14:00 the S&P 500 is down 7.5% from the previous close. What happens?: Answer: The whole market pauses for 15 minutes.A Level 1 circuit breaker (7%) triggered before 15:25 pauses the whole market for 15 minutes.
2. At 15:40 the S&P 500 is down 10%. What happens?: Answer: Trading carries on as usual.After 15:25, Level 1 and Level 2 circuit breakers no longer pause trading; only a full 20% drop halts it for the day.
3. A US stock jumps 60% on news. What does the exchange do?: Answer: There's no daily price limit, but it may pause for a few minutes when it breaks out of its LULD band.US stocks have no daily price limits; LULD only pauses for a few minutes when the price moves too fast and doesn't cap the day's total gain.

Terms in this lesson

circuit breaker (Circuit Breaker): When the market index falls by a set amount within a day, the whole market halts for a while, giving investors time to calm down and absorb the news (for example the 7%, 13% and 20% levels in US stocks).
Limit Up–Limit Down (LULD) (Limit Up–Limit Down): An intraday safeguard for individual US stocks: a band is set around the average price of the last few minutes, and if the price breaks out and doesn't come back, the stock pauses for about 5 minutes.
price limit (Price Limit): Some markets cap how far a stock can move in a day (±10% for most Chinese main-board stocks); hitting the cap is limit-up, hitting the floor is limit-down.
volatility interruption (Volatility Interruption): When a stock's price moves too far from a reference price in a short time, the exchange pauses continuous matching for a few minutes and switches to a call auction or a limited price band, so prices can't spin out of control in an instant.