Limit move

From Traderpedia

Definition:
The maximum allowable price move for a market.


A limit move is most often seen in the futures market where a contract can have a specific point limit. Other markets have variations on the limit concept whereby trading restrictions are implement when moves of a certain size or percentage occur. This can lead to trading halts.

[edit] Lock Limit

Lock Limit is a situation which develops in the futures market when the natural clearing market price (the price at which trade will be facilitated) is beyond the daily limit and trading essentially halts with price locked at the limit. It is locked there because no transactions can be executed beyond the limit and traders are unwilling to trade inside the limit.

Using Corn as our example, imagine that the closing price on Monday was $5.15 per bushel. On Tuesday it is reported that a severe blight has struck the corn crop, creating a supply shortfall. Prices jump to the $5.35 limit ($5.15+$0.20). The expectation is that the $6.00 level will be hit.

In such a situation, the market will go lock limit because trade cannot take place above $5.35 and no trader will sell below that point knowing the market is very likely to go higher. So trade essentially stops.

Lock limit can be broken during the day if things calm down, or it can go on for days. In our example, if Corn were to indeed go directly to $6.00, it would mean 4 consecutive limit moves.