A fluid used as hydraulic fluid in an automobile's brake system.

In the United States, brake fluid is currently available in DOT3, DOT4, and DOT5 formulations. DOT3 and DOT4 are glycol based and hydrophilic, and must be kept in tightly closed containers or they will absorb water from the air. This will lower the boiling point of the brake fluid and cause air pockets to develop in your brake lines, and make your brakes ineffective. This is also why brake lines must periodically have the brake fluid drained and refilled. DOT3 and DOT4 brake fluid will also dissolve paint--much like the mysterious Chinese liquor mao tai, which is packaged in a bottle similar to a brake fluid bottle.

DOT5 is relatively new and is silicone based and does not absorb water--but this means that water can collect as droplets in your brake lines and corrode them.

Which one you use depends on which one your car was designed for. Check the owner's manual and stick to the type of fluid it recommends.

source: howstuffworks.com

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