A circuit breaker is a mechanism designed to temporarily halt trading on a cryptocurrency exchange when prices experience extreme volatility. This tool helps stabilize the market and prevent panic selling or buying.When a cryptocurrency’s price falls or rises drastically within a short period, a circuit breaker activates, automatically stopping all trades for a set amount of time. This pause allows traders to assess the situation, gather information, and make informed decisions, reducing the likelihood of irrational market behavior.Exchanges implement various thresholds for price movements that trigger these breakers. For example, if the price of a major cryptocurrency drops by a certain percentage within a few minutes, the circuit breaker will kick in.Overall, circuit breakers serve to safeguard the market against wild fluctuations, providing an opportunity for cooler heads to prevail before trading resumes. This mechanism aims to enhance market integrity and protect investors from severe losses during turbulent times.