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. Commodities: The Portfolio Hedge
    Active Trading

    Commodities: The Portfolio Hedge

  2. How are foreign exchange rates affected ...
    Forex

    How are foreign exchange rates affected ...

  3. Lessons From A Trader's Diary
    Forex Education

    Lessons From A Trader's Diary

  4. Curious About Stock Index Futures? Read ...
    Options & Futures

    Curious About Stock Index Futures? Read ...

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center