Trading Sessions, Halts, and Circuit Breakers Explained

U.S. stock exchanges operate on defined schedules with specific rules governing when trading can occur and when it must pause. Understanding trading sessions, halts, and circuit breakers helps investors navigate market events and set appropriate expectations for order execution.

Regular Trading Hours

The New York Stock Exchange (NYSE) and Nasdaq operate regular trading sessions from 9:30 AM to 4:00 PM Eastern Time, Monday through Friday. These hours apply to most U.S.-listed stocks, ETFs, and options.

Markets close for nine federal holidays annually: New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Juneteenth, Independence Day, Labor Day, Thanksgiving, and Christmas. When holidays fall on weekends, markets observe the closest weekday.

Early closes occur on three days each year: the day before Independence Day, the day after Thanksgiving, and Christmas Eve. On these days, regular trading ends at 1:00 PM Eastern Time.

During regular hours, exchanges provide continuous two-sided quotes with market makers obligated to maintain bid and ask prices. Liquidity is highest during regular hours, resulting in tighter bid-ask spreads and better execution quality for most orders.

Pre-Market and After-Hours Sessions

Extended-hours trading allows transactions outside regular sessions:

• Pre-market: 4:00 AM to 9:30 AM Eastern
• After-hours: 4:00 PM to 8:00 PM Eastern

Extended-hours trading differs from regular sessions in important ways:

Reduced liquidity: Fewer participants trade during extended hours, resulting in wider bid-ask spreads. A stock with a $0.01 spread during regular hours might have a $0.10 or wider spread pre-market.

Higher volatility: Price movements can be more extreme with less volume to absorb orders. Earnings announcements released after market close often trigger significant after-hours price swings.

Limit orders only: Most brokers require limit orders during extended hours because market orders could execute at unfavorable prices due to thin order books.

ECN execution: Extended-hours trades execute on Electronic Communication Networks (ECNs) rather than the primary exchanges. Available ECNs vary by broker.

Not all brokers offer extended-hours trading, and those that do may impose additional requirements or restrictions. Commission structures may also differ from regular-hours trades.

Opening and Closing Auctions

Exchanges use auction mechanisms to establish opening and closing prices, concentrating liquidity at these critical moments.

Opening Auction

Before the 9:30 AM open, market participants submit orders that accumulate in the exchange's order book. The exchange calculates an indicative opening price that would match the maximum number of shares. At 9:30 AM, all accumulated orders execute simultaneously at a single opening price.

The NYSE publishes pre-opening indications starting at 8:00 AM when significant order imbalances exist. A stock might show "indicated $52.50-$53.00, 500,000 shares to buy" if buyers substantially outnumber sellers.

Closing Auction

The closing auction determines the official closing price used for index calculations, mutual fund NAV pricing, and derivative settlements. Orders designated as "market-on-close" (MOC) or "limit-on-close" (LOC) participate exclusively in this auction.

NYSE's closing auction begins accepting MOC and LOC orders at market open. A cutoff at 3:50 PM prevents new MOC orders (except to offset imbalances) and new LOC orders on the opposite side of published imbalances. At 4:00 PM, all accumulated orders execute at a single closing price.

Closing auction volume has grown substantially as passive investing expanded. On some days, over 10% of daily NYSE volume executes in the closing auction.

Individual Stock Trading Halts

Exchanges halt trading in individual securities for several reasons:

News pending (T1 halt): Companies can request halts before releasing material news. These halts typically last 15-60 minutes, allowing investors to digest information before trading resumes.

News dissemination (T2 halt): When significant news is released, exchanges may halt trading to ensure widespread distribution. Trading resumes once the exchange determines information has been adequately disseminated.

Regulatory halts: The SEC can order trading halts for suspected securities violations, lack of current information, or questions about the issuer's operations.

Limit Up-Limit Down (LULD) Mechanism

LULD prevents extreme price moves in individual securities by establishing price bands within which trading can occur. If a stock's price moves outside these bands, trading pauses.

Price bands are calculated as percentages from a reference price (typically the average price over the preceding five minutes):

If a stock's price touches the upper or lower band, a 15-second "Limit State" begins. If trading does not return within the bands during this period, a five-minute trading pause occurs.

During volatile days, LULD halts can occur frequently. On March 16, 2020, during COVID-19 market turmoil, hundreds of individual stock halts occurred across U.S. exchanges.

Market-Wide Circuit Breakers

When the S&P 500 index falls by specified percentages, market-wide circuit breakers halt trading across all U.S. equity exchanges. These mechanisms prevent panic selling and provide time for information to disseminate.

Current Circuit Breaker Levels

Level 1 and Level 2 halts only trigger before 3:25 PM Eastern. After 3:25 PM, only a Level 3 (20%) decline halts trading. Each level can only trigger once per day.

Historical Circuit Breaker Triggers

Market-wide circuit breakers have triggered rarely:

• March 9, 2020: Level 1 halt triggered at 9:34 AM when S&P 500 fell 7%. First market-wide halt since 1997.
• March 12, 2020: Level 1 halt triggered again during COVID-19 volatility.
• March 16, 2020: Level 1 halt triggered at 9:30 AM, immediately after the opening bell.
• March 18, 2020: Level 1 halt triggered as markets continued experiencing extreme volatility.

The original circuit breaker rules, implemented after the October 1987 crash, used point-based thresholds on the Dow Jones Industrial Average. The SEC reformed these rules in 2012, switching to percentage-based S&P 500 thresholds and adding the LULD mechanism for individual stocks.

Worked Example: LULD Halt Calculation

Consider a Tier 1 stock (S&P 500 component) trading at $100 with a 5% price band:

• Upper band: $100 × 1.05 = $105
• Lower band: $100 × 0.95 = $95

If sudden selling pressure pushes the bid down to $95, the stock enters a Limit State. Buyers and sellers have 15 seconds to bring prices back within bands. If the stock trades or quotes below $95 after 15 seconds, a five-minute trading pause begins.

When trading resumes, the exchange conducts a brief auction to establish a new price. New price bands are then calculated from this reopening price.

During the pause, investors can enter, modify, or cancel orders, but no executions occur. This pause allows participants to reassess information and prevents orders from executing during dislocated market conditions.

How Halts Affect Orders

Pending orders behave differently during halts depending on order type and broker handling:

Market orders: May execute at the reopening auction price, which could differ significantly from pre-halt prices. Some brokers cancel market orders during extended halts.

Limit orders: Remain in the order book and execute if the reopening price is within the limit. Limit orders provide protection against adverse reopening prices.

Stop orders: Most brokers do not trigger stop orders during halts. When trading resumes, stops may trigger if the reopening price crosses the stop level, potentially resulting in execution far from the stop price.

Investors should understand their broker's specific policies for order handling during halts. These policies are typically disclosed in customer agreements and on broker websites.

Risks and Limitations

Circuit breakers and halts introduce specific considerations:

Gap risk: Prices can move significantly during halts. A stock halted at $50 might reopen at $42, with no opportunity to exit between those prices.

Trapped positions: Options and leveraged products can experience outsized moves when underlying securities halt. Positions cannot be closed until trading resumes.

Information asymmetry: Institutional traders may have faster access to news triggering halts, potentially positioning before retail investors react.

Halt cascades: During market stress, multiple simultaneous halts can fragment liquidity and complicate portfolio management.

Next Steps

1. Check your brokerage platform's extended-hours trading availability, order types permitted, and any additional fees that apply outside regular hours.

2. Review your broker's policies for handling open orders during trading halts, including whether market orders are canceled or held.

3. Consider using limit orders instead of market orders for volatile stocks that might experience LULD halts.

4. Note the current S&P 500 level and calculate the point values for 7%, 13%, and 20% declines to understand where circuit breakers would trigger.

5. Set price alerts for positions in volatile stocks so you are informed quickly when LULD halts occur.