Limit Move

AAA

DEFINITION of 'Limit Move'

The largest amount of change that the price of a commodity futures contract is allowed to undergo. It is not possible to trade a futures contract at a price either above or below the futures contract price after a limit move. The limit price is set by the exchange on which the futures contract trades.

INVESTOPEDIA EXPLAINS 'Limit Move'

For example, assume that a wheat futures contract is selling for $3.50, and has a limit of $4. If a severe drought drastically reduces the supply or wheat, the futures price will rise to the $4 limit level, but no higher. This is referred to as a lock limit.

Limit moves are set in place to limit the risk (volatility) in futures price movements.

RELATED TERMS
  1. Futures Market

    An auction market in which participants buy and sell commodity/future ...
  2. Futures

    A financial contract obligating the buyer to purchase an asset ...
  3. Locked Market

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

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

    The maximum amount by which the price of a commodity futures ...
  6. Limit Down

    The maximum amount by which the price of a commodity futures ...
Related Articles
  1. Charts & Patterns

    How is the Accumulative Swing Index calculated?

    Learn how the accumulative swing index is calculated using swing index. Explore absolute value and how it is used in the calculation of the ASI.
  2. Active Trading

    Commodities: The Portfolio Hedge

    These diverse asset classes can provide downside protection and upside potential. Find out how to use them.
  3. Forex

    How are foreign exchange rates affected by commodity price fluctuations?

    In the foreign exchange (forex) market, currency valuations move up and down as a result of many factors, including interest rates, supply and demand, economic growth and political conditions. ...
  4. Forex Education

    Lessons From A Trader's Diary

    Discover what this trader learned from his mistakes and how to uncover your own.
  5. Chart Advisor

    Cocoa Prices Setting Up For A Move Lower

    Cocoa prices have been trending lower over the past several months and the recent bearish crossover between the 50-day and 200-day moving averages suggest that the long-term downtrend is gaining ...
  6. Options & Futures

    What are the differences between divergence and convergence?

    Find out what technical analysts mean when they talk about a market experiencing divergence or convergence and how they affect trading strategies.
  7. Options & Futures

    Futures Quotes Explained The "Easy" Way

    If there’s a security whose price fluctuates, there can theoretically be a futures marketplace for it.
  8. A commodity is a basic good used in commerce.
    Markets

    What are Commodities?

    A commodity is a basic good used in commerce that is interchangeable with other commodities of the same type. Commonly traded commodities include gold, beef, oil, lumber and natural gas. Additional ...
  9. Options & Futures

    Why is the Accumulative Swing Index helpful for traders and/or investors?

    Find out why J. Welles Wilder believed that the accumulative swing index could be used in the futures markets to indicate long-term trends.
  10. Options & Futures

    Stock Futures vs Stock Options

    A full analysis of when is it better to trade stock futures vs when is it better to trade options on a particular stock. A quick overview of how each of them works and why would a trader, investor, ...

You May Also Like

Hot Definitions
  1. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  2. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  3. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  4. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  5. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
Trading Center