Lock Limit
How It Works
A lock limit is a defined price movement threshold set by an exchange for a futures contract, beyond which trading is halted or restricted for the remainder of the session.
If Corn futures close at $4.00 and the daily limit is $0.25: * **Limit Up:** $4.25. * **Limit Down:** $3.75. If bad news hits and sellers push the price to $3.75, trading doesn't necessarily stop. It just cannot occur *below* $3.75. You can still sell at $3.75 if there is a buyer. But if no one wants to buy at $3.75, the market is "Locked Limit Down." Sellers are stuck until the next day or until limits are expanded.
Key Takeaways
- Prevents extreme volatility and panic.
- Limit Up: Maximum price rise.
- Limit Down: Maximum price fall.
- Trading *stops* at the limit price (market is "Locked").
- Limits often expand the next day.
Synthetic Futures Defense
If you are trapped in a limit-down move (long position), you can't sell. Traders sometimes use Options (which might still be trading) to create a synthetic short position to hedge the risk until the futures market unlocks.
FAQs
Not exactly. Stocks have "Circuit Breakers" (LULD) that pause trading for 5-15 minutes. Futures lock limits can last for the entire day.
Usually, the exchange expands the limits (e.g., to $0.40) to let the market find a clearing price.
The Bottom Line
Lock limits are the emergency brakes of the futures market. Being caught on the wrong side of a locked move is one of the most dangerous situations in trading, as you cannot exit the position.
Related Terms
More in Futures Trading
At a Glance
Key Takeaways
- Prevents extreme volatility and panic.
- Limit Up: Maximum price rise.
- Limit Down: Maximum price fall.
- Trading *stops* at the limit price (market is "Locked").