Price Limits

Exchange caps on how far a futures price can move in a single session.

Overview

Many futures contracts carry daily price limits, the maximum move up or down from the prior settlement, after which trading halts or can only occur at the limit. US grain and livestock futures have long used them, often with expanded limits after a limit close, while other markets rely on brief trading halts known as circuit breakers. A limit up or limit down day can trap traders who cannot exit, pushing price discovery into options or cash markets. Limits are meant to cool panics and give margin calls time to be met. The London Metal Exchange introduced daily limits on its base metals after the March 2022 nickel crisis, when prices briefly topped 100,000 dollars a tonne.