Definition of Circuit Breaker

A Circuit Breaker or a collar is a measure that is set in order to stop panic selling after either a security or an index has fallen drastically by a particular amount. A circuit breaker is an instrument used to let investors and traders to understand if a particular fall in a security or a market index is a dire situation or not. It helps control the situation when markets are volatile and there is a tendency for investors to make decisions based on the emotion of panic.