Daily Trading Limit

AAA

DEFINITION of 'Daily Trading Limit'

The maximum gain or loss on a derivative contract, such as options and futures contracts, that is allowed in any one trading session. The limits are imposed by the exchanges in order to protect against extreme volatility or manipulation within the markets.

INVESTOPEDIA EXPLAINS 'Daily Trading Limit'

When daily trading limits have been reached, it is said to be a "locked market", and trading will halt for any trades that break the threshold or trading will close for that particular security.

Daily trading limits can also be in place for currency trading, such as China's daily trading limit of 0.5% for the Chinese renminbi against the U.S. dollar. When a particular commodity or contract has reached the daily trading limit, it may be considered "limit up" or "limit down", depending on the direction of the day's move.

Trading limits are much more important for derivatives than for stocks or bonds, for example, because so many investors use massive amounts of leverage to trade commodities, currencies and futures contracts.

RELATED TERMS
  1. Limit Up

    The maximum amount by which the price of a commodity futures ...
  2. Derivative

    A security whose price is dependent upon or derived from one ...
  3. Locked Market

    A market in which a stock's bid and ask prices are identical. ...
  4. Revaluation

    A calculated adjustment to a country's official exchange rate ...
  5. Futures

    A financial contract obligating the buyer to purchase an asset ...
  6. Limit Down

    The maximum amount by which the price of a commodity futures ...
Related Articles
  1. Forex Education

    Forex Leverage: A Double-Edged Sword

    Find out how this flexible and customizable tool magnifies both gains and losses.
  2. Options & Futures

    Price Volatility Vs. Leverage

    Learn how to effectively gauge the risk of the markets you trade.
  3. Options & Futures

    An Introduction To Managed Futures

    Their inverse correlation with stocks and bonds make these alternative investments worth getting to know.
  4. Options & Futures

    What is the difference between a short position and a short sale?

    Learn how short selling and short positioning are different, specifically in regards to the nature of the commodity being bought and sold.
  5. Options & Futures

    Are there any risks involved in trading put options through a traditional broker?

    Explore put option trading and different put option strategies. Learn the difference between traditional, online and direct option brokers.
  6. Options & Futures

    Options -- Accessing Stakes In Apple At Less Cost

    Finding Apple stock costly to trade? Here are multiple ways to trade it through low-cost Apple options.
  7. Investing Basics

    The Strange New World Of The Bitcoin Exchange Futures Market

    We explain the basics of the Bitcoin exchange and futures market.
  8. Options & Futures

    These Are The Top Brokerage Firms For Options Trading

    Trading options? Here is the list of the best brokerage firms for options trading, with features, functionality, and brokerage rates.
  9. Options & Futures

    What is a volatility smile?

    Discover what options traders mean when they refer to a "volatility smile," and learn why a volatility smile's existence perplexes many investors and analysts.
  10. Options & Futures

    Apple As An Example Of How a Protective Collar Works

    We define a protective collar, using Apple (AAPL) as an example. A protective collar is a combination of a covered call plus long put position.

You May Also Like

Hot Definitions
  1. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  2. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  3. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  4. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  5. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  6. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
Trading Center