Fact Sheet: Price Limits

  • 17 Dec 2017
  • By CME Group

At CME Group, as part of our overall risk management program, we use price limits to give market participants time to mobilize liquidity during periods of significant price swings.  Price limits specify the maximum amount a price can increase or decrease in a single trading session.  These guardrails are set by the exchange and are designed to give the market a break in times of quick market moves – either by instituting a pause in trading when a circuit breaker is hit or keeping the market from moving beyond at a set price if a daily fluctuation limit is hit.

How Price Limits Work

  • Take U.S. equity markets and CME’s new bitcoin futures market as examples.  In these markets, there are price limits set at 7%, 13% and 20% during the trading day, and U.S. equity products have additional limits set in the overnight session.  Price limits for all CME Group products are available at http://www.cmegroup.com/trading/equity-index/price-limit-guide.html.
  • These limits apply to both upside and downside price changes relative to the prior day’s futures settlement price.  So if a contract settled yesterday at $10,000, its price limits today would be $10,700 (+7%), $11,300 (+13%) and $12,000 (+20%) on the upside and $9,300 (-7%) $8,700 (-13%) and $8,000 (-20%) on the down side. 

Circuit Breakers

  • The first two price limit levels, +/- 7% and +/- 13%, are circuit breakers.  That means if the contract moves up or down by 7 or 13%, a two-minute monitoring period will begin. 
  • If, at the end of the two-minute period, the contract trades away from the limit, then trading will continue without a pause at the expanded price limits of +/- 13% and +/- 20%, respectively. 
  • If the contract is still trading at the limit at the end of the monitoring period, then there will be a two-minute trading pause in which the contract will enter into “a pre-open” market state.  That’s a time when orders can be entered, modified or cancelled, but no trades match until the market re-opens and the contract resumes trading at the expanded price limits of +/- 13% and +/- 20%, respectively.

Daily Fluctuation Limits

  • The last +/- 20% price limit is a daily fluctuation limit. So if prices reach that level, the market keeps trading (no pause) but price limits stop expanding.  Markets are open, but trading continues only at or within the +/- 20% limit for the remainder of the trading session.