What is the price limit?
The main stock exchanges on which the financial securities trade must set the parameters so that there are order and responsibility in the markets where large amounts of money are traded every day. The price limit is one such measure and is most effective in trading derivatives. There is a price limit on the markets when a derivative security such as a commodity or optic. Once this level is reached, trading will stop in this financial security until the next business day. It is a protective measure against irregular trading, fraud or other manipulative market behavior.
When the derivative security increases to a certain price or falls below the level, the price limit will come into force. The exchange, which is traded with commodity or options, such as the CME group in the US, in Chicago in Illinois, is responsible for promoting trading. It may seem that merchants are prevented from making profits from specific financial security but purposeThe price limit is the protection of traders and investors. The protective measure comes from honorary but extreme market fluctuations in markets with derivatives in addition to potential handling of price that could lead to extreme volatility.
In all financial markets, there are large amounts of money at stake, including where stocks and bonds trade in addition to the derivative market. Financial shares will become even higher when traders add leverage or debt to trade to alleviate potential losses and increase profits. This is one of the reasons why the price limit is so important, because when a trader provides a position or tries to narrow the distance between profit and loss, the unbalanced price movements may be particularly harmful.
As soon as the stock exchange sets the price limit, the results should be published on the marketplace of the Burzor market participants. After setting the price limit, it may be changed when urging the market.If the Exchange believes that a contract on the possibilities or commodities will reach its price limit too often, it can issue a vote on approval of the change in this business threshold. Changes could potentially develop across the board in all types of commodities, or adjustments could focus on a particular crop such as corn. The decision to change the price limits could be based on the perception of the way in which the markets of derivatives work, and some market participants may disagree.