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| Maximum Price Fluctuation |
The exchange specifies a daily maximum price fluctuation for most futures contracts. The daily maximum price fluctuation is also called the “daily price limit.” It gives an upper and lower limit for the price of a futures contract during one trading session.
If the futures price moves up from the previous day’s settlement price by an amount equal to the daily price limit, the futures contract is “limit up,” and if it moves down by the price limit it is “limit down.”
A limit move is a price fluctuation in either direction equal to the daily maximum price fluctuation. Usually, if a futures contract is limit up or down, the trade ceases for that day. Maximum price fluctuations are specified in order to prevent excessive speculation.
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For example, the maximum price fluctuation for a crude oil futures contract is $10 per barrel or $10,000 per contract; for heating oil it is $0.25 per gallon ($10,500 per contract of 42,000 gallons). Note that the exchange has the authority to change the limits and there exist futures contracts for which no maximum price fluctuation is specified.
