The lock-limit is one way that the markets can be controlled. These lock limits are specific to the futures market and they will help protect investors and sellers in the event that the futures prices change drastically. This is important because there are so many different factors that affect the futures market, that it is relatively easy for the markets to skyrocket or plummet, depending.
If there is a lock limit set, that basically locks in the price. For example, if market prices in general are going through an upswing, and the price reaches the lock-limit, then the prices will be locked. At that point, it will no longer be possible to sell any shares at a price over the lock-limit, even if the whole market goes up. Similarly, if the market is currently in a down-swing, and the prices go below the set lock-limit, then the futures will not be sold anymore until the price goes back above the lock limit.
The lock-limit can either be an advantage or a disadvantage to you if you’re going to invest in futures. On one hand, it might keep you from getting a better price on your futures. On the other hand, this is one way that you can make sure that the price of your future does not drop too far in a day – so you’ll cut your losses.
There are a few other terms that are associated with the lock-limit. These terms are “limit up” and “limit down”. The limit up is just the official term for the lock-limit when the market is going up. Usually the limit up is taken over a single day of trading, however, so it is possible that the market prices could go up higher the next day.
The limit down is a term that is used to refer to the lock-limit when the market is going down in price. This is just the limit up, but when the futures market is moving in the opposite direction.
Finally, you may also hear lock-limits referred to as the “limit move”, “trading halt” or “suspended trading”. Any one of these terms just refers to the limit that has been placed on futures trading for the day.