daily trading limit

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Daily Trading Limit

The maximum amount of gain or loss that can occur on a particular security or, more commonly, derivative on a trading day. Derivatives, currencies, and commodities can be extremely volatile investments. In order to prevent this volatility from spiraling out of control, options and futures exchanges enact daily trading limits stating that a security cannot rise or fall more than a certain percent in a given trading day. If a security reaches the daily trading limit, trading on that security is suspended for the remainder of the day. This is called a locked market. See also: Limit up, Limit down.

daily trading limit

In commodities, the range of prices within which trades may take place during a day. The limit is usually determined on the basis of the previous day's settlement price.

Daily trading limit.

The daily trading limit is the most that the price of a futures contract can rise or fall in a single session before trading in that contract is stopped for the day.

Trading limits are designed to protect investors from wild price fluctuations and the potential for major losses. They're comparable to the circuit breakers established by stock exchanges to suspend trading when prices fall by a specific percentage.