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.

BREAKING DOWN '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. Limit Move

    The largest amount of change that the price of a commodity futures ...
  3. Limit Down

    The maximum amount by which the price of a commodity futures ...
  4. Lock Limit

    Commonly associated with the futures market, a lock limit occurs ...
  5. Variable Price Limit

    A schedule of price variations above or below the accepted limits ...
  6. Position Limit

    The highest number of options or futures contracts an investor ...
Related Articles
  1. Trading

    Examples Of Exchange-Traded Derivatives

    We look at some of the most common exchange-traded derivatives.
  2. Investing

    Introduction To Currency Futures

    The forex market is not the only way for investors and traders to participate in foreign exchange.
  3. Trading

    Futures, Derivatives and Liquidity: More or Less Risky?

    Futures and derivatives get a bad rap after the 2008 financial crisis, but these instruments are meant to mitigate market risk.
  4. Investing

    Fueling Futures In The Energy Market

    The energy market influences every aspect of our lives, and these four options are its driving force.
  5. Trading

    How to Trade Dow Jones Future Contracts

    Learn about the Dow Jones Index futures contracts available and obtain step-by-step instruction on how to trade the stock index futures.
  6. Investing

    How To Invest In Commodities

    Find out which futures, options or funds will be your perfect commodity portfolio fit.
  7. Trading

    Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.
  8. Trading

    Advantages Of Trading Futures Over Stocks (APPL)

    We look at the top eight advantages of trading futures over stocks.
  9. Investing

    3 Reasons to Use ETF Options Over Futures (SPY, QQQ)

    Learn about exchange-traded fund (ETF) options and index futures, and why it might be a better decision to use ETF options instead of futures.
RELATED FAQS
  1. What kinds of derivatives are traded on an exchange?

    Learn about the different types of derivatives traded on exchanges, including options and futures contracts, and discover ... Read Answer >>
  2. How do the investment risks differ between options and futures?

    Learn what differences exist between futures and options contracts and how each can be used to hedge against investment risk ... Read Answer >>
  3. How is the price of a derivative determined?

    Learn how different types of derivatives are priced, including how futures contracts are valued and the Black-Scholes option ... Read Answer >>
  4. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Answer >>
  5. How do I set a strike price for a future?

    Find out why futures contracts don't have set strike prices like options or other derivatives, even though price change limits ... Read Answer >>
  6. What does it mean to roll a derivative contract?

    Find out more about derivative securities, how to roll forward a derivative contract and what it means when a derivative ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center