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Limit Down

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Limit down refers to the maximum amount that a futures contract price is allowed to drop on a single trading day. Different markets react differently if the limit down price is reached. One may completely close the trading of contracts on that particular day that limit down is reached. Another market might allow trading to resume if the price moves away from the limit down price. In extraordinary circumstances, a future may move limit down (preventing trading) for several days. If a major event ends up affecting a particular commodity, it could take days before that change is reflected in the contract price; this means that the limit down may be reached before the equilibrium is achieved. The opposite of limit down is limit up. Limit down is sometimes called "daily price limit."



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