DEFINITION of 'Limit Up'

The maximum amount by which the price of a commodity futures contract may advance in one trading day. Limit up refers to when a futures contract will have a maximum threshold in order to ensure that large unexpected or potentially catastrophic events do not push a contract's price into levels of irrational valuation based upon investor panic or manipulation.


Think of a limit up as a sort of circuit breaker on a futures contract's price movements. Some markets close trading of these contracts when the limit up is reached; others allow trading to resume if the price moves away from the day's limit. If there is a major event affecting the market's sentiment toward a particular commodity, it may take several trading days before the contract price fully reflects this change. On each trading day, the trading limit will be reached before the market's equilibrium contract price is met.

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