A Daily Price limit is the maximum price limit permitted for a trade in futures contract in a single trading session when compared with its settlement price from the previous day. The maximum permitted price during a trading day is known as ‘Limit Up’ and the maximum permitted price decline during a trading session is referred to as ‘Limit Down’. Daily price limits are examples of circuit breakers or curbs on trading, put in place by exchanges to help maintain conducive trading conditions, especially during volatile markets or when there is some specific news or during extraordinary conditions prevalent in markets. Stock exchanges impose these limits to protect traders/investors from extreme price fluctuations and also to prevent potential price manipulation practices. Trading can continue even after the daily price limit has been reached, but the price will not cross the maximum limit set for the day.
