Trading Limit
A trading limit is the maximum amount a futures contract's price is allowed to move up or down during a single trading day, measured from the previous day's settlement price. It is set by the exchange that lists the contract, not by a broker, and it applies to futures and futures options, not to stocks.
Each contract has its own limit, expressed as a fixed number of points or dollars, and exchanges periodically adjust these limits based on volatility. Once a contract's price reaches its upper or lower limit, the exchange calls this "limit up" or "limit down." Depending on the exchange and contract, trading may then stop completely for the rest of the session, or trading may continue but only at prices within the limit (meaning no trade can execute beyond that boundary).
The nuance that trips people up is confusing a trading limit with a "limit order" or with stock market circuit breakers. A trading limit has nothing to do with the price you set on an order; it is a market-wide ceiling or floor on where any trade can occur that day. It is also a different mechanism from equity circuit breakers, which pause a stock temporarily rather than fixing a hard price boundary for the whole session. Some futures markets also use expanding limits, where the limit widens on the following day if a contract closes at its limit.
Because the limit resets relative to the prior settlement price, a market can be limit-up one day and then move further the next day if sentiment continues, effectively climbing in daily increments rather than all at once.
This term depends on a rule or threshold that changes over time, so no specific figure is quoted here. The specific dollar/point value of any contract's daily trading limit, whether trading halts entirely or continues within the band, and whether expanding-limit rules apply are all set and periodically revised by the individual exchange (e.g., CME, ICE) for each contract. A human should verify current limit values and mechanics directly on the exchange's contract specifications page before publishing specifics for any named contract.
If a futures contract a day trader is holding hits its limit, it can become impossible to exit the position at any price beyond the limit, turning what looked like a liquid market into one with no available fills in the direction you need.
Suppose crude oil futures settled at $80.00 the prior day and the exchange sets that day's limit at $8.00. Prices can trade anywhere between $72.00 and $88.00. If the contract trades up to $88.00 and buyers keep pressing, the exchange may halt trading or restrict trades to no higher than $88.00 (limit up), leaving traders who want to buy at a higher price unable to do so until the limit is lifted or the next session begins.
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