DEFINITION of 'Lock Limit'

Commonly associated with the futures market, a lock limit occurs when the trading price of a futures contract arrives at the exchanges predetermined limit price. At the lock limit, trades above or below the lock price are not executed.

BREAKING DOWN 'Lock Limit'

For example, if a futures contract had a lock limit of $5, as soon as the contract traded at $5 the contract would no longer be permitted to trade above this price if the market is on an up trend, and the contract would no longer be permitted to trade below this price if the market is on a down trend. The main reason for these limits is to prevent investors from substantial losses due to the volatility found in futures markets.

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