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What is a limit move?!
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What is a limit move?!

  #1 (permalink)
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What is a limit move?!

On this web site Trading Wheat Futures

I got this info:

The crazy thing about limit moves, however, is that basically “all bets are off” when it comes to stop-loss orders and so forth. In other words, if you are trading wheat futures and you get caught on the wrong side of a limit move, you are screwed, dude…there’s no way around it. You will not be able to get out of the market until it settles down and “normal” trading resumes

Explain me please what does it mean actually? Does it happen in any futures market or wheat only?

And does it mean that even if I have a market stop order in place it will be ignored when this thing happens and my account will die??

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  #3 (permalink)
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Chipmunk View Post
On this web site Trading Wheat Futures

I got this info:

The crazy thing about limit moves, however, is that basically “all bets are off” when it comes to stop-loss orders and so forth. In other words, if you are trading wheat futures and you get caught on the wrong side of a limit move, you are screwed, dude…there’s no way around it. You will not be able to get out of the market until it settles down and “normal” trading resumes

Explain me please what does it mean actually? Does it happen in any futures market or wheat only?

And does it mean that even if I have a market stop order in place it will be ignored when this thing happens and my account will die??

The 'limit moves' are the Hi-Lo price limi where the instruments can fluctuate, in simple word it can't surpass that limit otherwise the trading is closed, and if u have a open positions u will unable to do anything till a new price is established and the market re-open, this sometime happens on stocks when the price change to much and the stock is see like to much overpriced or underpriced trading is suspended.
If u go on the CME website u will see, selecting an instrument the daily Hi-Lo limit price, if there is, otherwise for others products like index futures the limit price is established quarterly on % of previus quarter price fluctuation.
Anyway maybe on agriculture products the hit of price limit can happen more frequently, but on the others instrments that usually a day trader trades is really unusual.

Take your Pips, go out and Live.
Luke.

Last edited by LukeGeniol; October 18th, 2010 at 06:02 PM.
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Limit Move and Lock Limit Explained

Limit Move

The maximum price advance or decline in a futures contract from the previous day's settlement price permitted during one trading session. The futures exchange where the contract trades will set the limit.
Limit prices often expand for the next trading session if prices hit their current limit move during the currect session.

Lock limit explained by Traderpedia (Trade2Win)

Lock Limit is a situation which develops in the futures market when the natural clearing market price (the price at which trade will be facilitated) is beyond the daily limit and trading essentially halts with price locked at the limit. It is locked there because no transactions can be executed beyond the limit and traders are unwilling to trade inside the limit.
Using Corn as our example, imagine that the closing price on Monday was $5.15 per bushel. On Tuesday it is reported that a severe blight has struck the corn crop, creating a supply shortfall. Prices jump to the $5.35 limit ($5.15+$0.20). The expectation is that the $6.00 level will be hit.
In such a situation, the market will go lock limit because trade cannot take place above $5.35 and no trader will sell below that point knowing the market is very likely to go higher. So trade essentially stops.
Lock limit can be broken during the day if things calm down, or it can go on for days. In our example, if Corn were to indeed go directly to $6.00, it would mean 4 consecutive limit moves.

Daily limits are only appied to some of the futures markets.

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Daily Price Limits for Agriculturals

Usually these price limits are triggered by USDA reports that come out different than expected, so if you trade grains you should be aware of the release dates of the reports.

Below is a link to the document with the contract specifications for grain and oilseed futures and options traded at CME. For each of the products you will find a daily price limit.

http://www.cmegroup.com/trading/agricultural/files/AC-268_Grains_FC_FINAL_SR.pdf


An up-to-date summary of all current daily price limits can be found here:

Price Limit Update

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We had some recent examples: corn, soya and wheat were limit up on Oct 8. Corn and soya were locked the whole session but wheat traded off a bit from its peak. This happened following the monthly USDA crop supply and demand report which saw reduced yields. The following monday saw another limit up (expanded) situation to start the session, but prices moderated as the day went on. Many fortunes were made and wiped out over those 2 days.

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Being caught long when the market goes limit down, or being caught short when the market goes limit up, doesn't necessarily mean you cant't get out, or at least spread out of your position by buying/selling in another month, IF there are other months that haven't locked limit up/down yet. Conversely, if you are fortunate enough to be the "right "way in a limit down move, you can take advantage of the spreads getting out-of-whack, and lock in a nice winner. As a rule, the farther out from the front month you go in a carrying charge market, the wider the spread will go out.

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tigertrader View Post
Being caught long when the market goes limit down, or being caught short when the market goes limit up, doesn't necessarily mean you cant't get out, or at least spread out of your position by buying/selling in another month, IF there are other months that haven't locked limit up/down yet. Conversely, if you are fortunate enough to be the "right "way in a limit down move, you can take advantage of the spreads getting out-of-whack, and lock in a nice winner. As a rule, the farther out from the front month you go in a carrying charge market, the wider the spread will go out.


What I understand from your comment is that a move limit down is not similar to a move limit up. A move limit up may point to a physical shortage for the current crop, which can force you into delivery, if you are holding a short position that you cannot cover. The physical shortage cannot be stored.

If a move limit down causes a widening of the spread exceeding carrying cost, then a long position can be hedged by entering a short position of a back month. But this requires some knowledge of the cash market. I would not be capable of estimating carrying costs for wheat. Only hint for the non-initiated: If the contango has widenened beyond its usual scope, it will probably make sense to enter the calendar spread anyhow, as it should give protection against further price declines.

However, the calendar spread does not protect against assignment for delivery, and I do not have the required storage space in my home, although it can easily accessed by ships carrying up to 1.000 long tons.

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Been trading grains since the 70's...never had to make or take delivery. You just don't trade lead month after first notice day.

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tigertrader View Post
Been trading grains since the 70's...never had to make or take delivery. You just don't trade lead month after first notice day.

It was sort of a joke as some barges (usually carrying heating oil, diesel or building materials) pass near my house. If you are caught limit up just two day prior to first notice and then selected for unknown reasons, you might be in a problem.

I agree that this is really improbable. But remember 3-Miles-Island, this also was a combination of 7 or 8 low probability events and nearly produced a meltdown. I guess that would have been limit up for wheat as well?

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