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Lock limit

A market pinned at its daily price limit with unfilled orders queued on one side and no trading through the limit price.

Lock limit is the futures version of being trapped. If corn is locked limit up, everyone who wants to buy is bidding at the limit and no seller is willing. A short position cannot be closed at any accessible price, and losses keep accruing as the market gaps limit after limit on subsequent days.

Margin is still collected daily on the limit settlement, so the account bleeds cash while unable to exit.

Example: a trader short 5 lean hog contracts through a disease headline sees three consecutive limit-up days of 3.75 cents each, 11.25 cents x $400 per cent x 5 = $22,500 of losses with no exit available.

Related: limit-up-limit-down, expanded-limits, variation-margin, tail-risk

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Margin and leverageA small deposit controlling a much larger position, and the point at which losses trigger a margin call.Position you controlnotional value $100,000your margin deposit: $5,000$100,000 / $5,000 = 20:1 leverageYour deposit absorbs every dollar of loss$5,000$2,500$0Equity leftMARGIN CALLequity has fallen to $2,5000%1%2%2.5%3%4%5%How far the price moves against you
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.

Educational only, not advice. Spotted an error? Post in Site Feedback.