What Is Limit Down?

Limit Down is a term used in commodities trading to refer to the maximum amount by which the price of a commodity is allowed to fall in one trading day. If the limit is hit, then the market will either close totally for the day or will not be open for trading until the price drops below that limit price.

If there is a major event affecting the price of a commodity (i.e. new discovery of significant and easily accessible oil field, clearing houses reducing margin requirements for gold etc.) then the effects of a Limit Down may mean it takes several trading days for the price of the commodity to reach its new norm due to it being more than a single ‘Limit Down’ price decrease.

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