Definition
A circuit breaker is a fail-safe mechanism in automated trading that automatically exits a position when a predefined condition is violated. In cross-platform arbitrage, the critical condition is: both legs must fill within a specified time window. If either leg fails, the circuit breaker unwinds the other.
Why it's essential
Without a circuit breaker, a failed Leg 2 leaves you with an open directional position on Leg 1. If the market moves against you before you manually notice and exit, you've turned an arbitrage trade into a speculative loss. The circuit breaker makes this scenario impossible by automating the unwind.
How it works in Arbitrage Agent
- Leg 1 fills (e.g., YES on Polymarket at $0.47)
- Leg 2 is attempted simultaneously (NO on Kalshi at $0.51)
- If Leg 2 doesn't fill within the timeout (~400ms), the circuit breaker fires
- Leg 1 is reversed at market — the YES position is sold
- Net directional exposure returns to zero
The cost of triggering a circuit breaker
When the circuit breaker fires, the unwind may not happen at exactly the original fill price. Slippage on the reversal can result in a small loss (typically 0.1–0.5% of position size). This is acceptable — far better than holding a directional position of unknown size for an unknown duration.
Kill switch vs circuit breaker
A kill switch is manual — you click it to stop all trading and exit all positions. A circuit breaker is automatic — it fires on a specific trigger (failed leg fill). Both are necessary: the circuit breaker handles execution failures, the kill switch handles anything unexpected.