Quick Answer
A daily price limit caps how far a futures price may move from the prior session's settlement price, but trading continues at or within the limit. Exchanges expand limits after limit sessions and raise margin alongside them. A locked market has no willing counterparty at the limit, trapping a trader. A circuit breaker is a separate, percentage-based, market-wide halt.
The whole unit on one sheet: what a daily price limit does and does not stop, how expansion and margin respond to it, and how a locked market differs from a circuit breaker.
What Does a Daily Price Limit Actually Do?
- The daily price limit is the maximum a futures price may move up or down from the prior session's settlement price, fixed by the exchange's rules.
- Limit up blocks prints above the boundary; limit down blocks prints below it.
- Reaching the limit does not halt all trading. Buyers and sellers can still transact at or within the daily range; the limit caps the print, not the underlying buying or selling pressure.
Why Do Exchanges Expand Limits, and What Happens to Margin?
- After a session (or a run of sessions) closes at the limit, the exchange typically widens the limit for the next session so the price can move toward its true level. The expansion steps up with more consecutive limit sessions, can be removed entirely for a time, and narrows back once volatility subsides.
- Margin and limit expansion usually move together. During limit moves and heightened volatility, exchanges and clearinghouses commonly raise performance-bond requirements, then ease both back down together once conditions calm.
- A trader trapped in a locked market cannot offset while losses build, which is the sharpest reason margin rises.
Which Numbers Matter Most?
| Concept | What It Means |
|---|---|
| Limit measured from | Prior session's settlement price, never the intraday high, low, or open |
| Locked limit | Price pinned at the boundary because no counterparty will trade there; effectively no trading occurs |
| Locked limit up traps | The short, who cannot buy back |
| Locked limit down traps | The long, who cannot sell |
| Circuit breaker trigger | A percentage move in the index, not a fixed price distance |
| Equity-index circuit breaker tiers | Roughly 7%, 13%, and 20% declines (illustrative; exchanges revise the exact levels) |
| First two tiers | Trading halts briefly, then resumes |
| Deepest tier | Market closes for the trading day |
How Is a Circuit Breaker Different From a Price Limit?
- A price limit is per contract; a circuit breaker is a coordinated, market-wide halt, used especially in stock-index futures and coordinated with the underlying stock market's own breakers.
- Outside regular stock-market hours, a single overnight percentage limit can apply where the market stays open but only trades up to that limit rather than halting.
Which Gotchas Trip Students Up?
- A locked market is caused by the order imbalance, not by the limit itself. A contract can trade at the limit as long as a counterparty is willing; it only locks when one side has none.
- Meeting a margin call does not unlock a locked market. It only keeps the account funded; the position stays stuck until a counterparty appears or the exchange expands the limit.
- Expanded limits exist to restore price discovery, not to encourage volatility, and the expansion is temporary.
- The two lower circuit-breaker tiers pause and resume; only the top tier closes the day.
One-Breath Recap
A daily price limit caps how far a futures price may move from the prior session's settlement price, blocking prints beyond the boundary while trading continues at or within it, and a market locks only when the imbalance leaves no willing counterparty there, trapping a short in a locked-limit-up market or a long in a locked-limit-down market until the imbalance eases or the exchange expands the limit; exchanges typically widen limits and raise margin together after limit sessions, then ease both back once volatility subsides; a circuit breaker is a separate, coordinated, market-wide halt triggered by a percentage move in the index rather than a price distance, with the first two tiers pausing and resuming and only the most extreme tier closing the market for the day.
Need more than the recap? Read the full Price Limits unit.