Limit-Up / Limit-Down
Exchange-defined daily price boundaries (typically 7%, 13%, 20% for equity index futures) that trigger trading halts when reached — designed to prevent disorderly markets during extreme volatility.
What is Limit-Up / Limit-Down?
Limit-up/limit-down (LULD) refers to exchange-defined daily price boundaries that, when reached, trigger automatic trading halts. The mechanism exists to prevent disorderly markets during extreme volatility — a circuit breaker for futures markets analogous to the SPX circuit breakers for equities.
For CME equity index futures (ES, NQ, YM, RTY), the limits are set at 7%, 13%, and 20% above or below the prior session’s settlement price. Hit Level 1 → 15-minute halt. Hit Level 2 after resumption → another 15-minute halt. Hit Level 3 during regular trading hours → trading halted for the rest of the session.
Other contracts have their own limit structures: CL has $10/barrel daily move limits; NG has variable limits based on prior settlement; treasuries have point-based limits. Each contract’s limits are published in the exchange’s contract specifications.
How Limit-Up / Limit-Down works
CME equity index LULD structure:
| Level | Threshold | Action |
|---|---|---|
| 1 | ±7% from prior settle | 15-min halt, then resume with limit lifted |
| 2 | ±13% from prior settle | Additional 15-min halt |
| 3 | ±20% from prior settle | Trading halted rest of session (during RTH) |
How limits are computed: Reference price = prior settlement. Settle 4500 → Level 1 down = 4185 (4500 × 0.93). Same calculation for upside (4500 × 1.07 = 4815).
What happens during a halt:
- Trading suspends instantly when last trade hits the limit
- No new orders accepted
- Existing orders cannot be modified or canceled
- Positions held by traders remain open (no auto-close at exchange level)
- Some prop firms may auto-flatten during halts (varies by firm policy)
- Halt duration: 15 minutes for Levels 1-2, rest of session for Level 3
- Re-open: trading resumes with limit threshold adjusted upward (Level 1 lifts; Level 2 becomes new threshold)
Why reopens are dangerous:
- Trading halts pause the price action but don’t stop the underlying news/volatility
- By the time halt ends, sentiment may have shifted dramatically
- Reopen often produces large gap from halt-trigger price
- Stop-market orders trigger at the gap price (potentially many ticks worse than expected)
- Limit orders may not fill at expected levels due to gap
Historical examples:
- March 2020 COVID crashes: Multiple Level 1 halts on ES during emergency selloffs. Some sessions hit Level 2.
- August 5, 2024 yen-carry unwind: ES limit-down -7% in pre-market session. Significant trader losses on overnight long positions.
- FOMC days: Most likely days for fast moves that approach Level 1 thresholds. Rarely actually trigger halts but spreads widen dramatically.
For prop firm traders: LULD halts are catastrophic for leveraged overnight positions. A trader holding 5 ES long into an overnight session that hits limit-down -7% loses ~$15,750 (5 × 7% × 4,500 starting × $50/point) — drawdown breach on every account. Plan ahead: don’t hold size through anticipated volatility events.
Worked example
August 5, 2024 yen-carry crash example:
- Friday Aug 2 close: ES settled at 4925
- Sunday Aug 4 evening: ES futures open at 4900 in evening session
- Monday Aug 5 pre-market (3:00 AM ET): Yen-carry unwind accelerates. ES drops aggressively.
- 3:30 AM ET: ES hits 4580 (-7% from 4925 settle). LIMIT-DOWN triggered.
- 3:30-3:45 AM ET: 15-minute halt. No trading possible.
- 3:45 AM ET: Reopen. Limit lifted to -13% (~4286). ES bounces to 4595, then continues down to 4555.
- 9:30 AM ET: Regular session opens at 4540. By then, most prop firm traders with overnight long positions have had accounts closed by trailing drawdown breaches.
Trader’s perspective who held 5 ES long from Friday close at 4925:
- Pre-market drop: 4925 → 4580 = -345 points × $50 × 5 contracts = -$86,250
- This is dwarfingly larger than any prop firm drawdown buffer
- Account closed somewhere in the 4900-4850 range as trailing drawdown breached
- Position auto-closed by firm at whatever price was available
- Trader may not have even seen this happening if not awake at 3 AM
Lesson: don’t hold leveraged overnight positions through risk-off periods or anticipated volatility events.
Limit-Up / Limit-Down vs related concepts
Side-by-side comparison of Limit-Up / Limit-Down against the most commonly confused alternatives.
| Concept | Definition | Category |
|---|---|---|
| Limit-Up / Limit-Down this term | Exchange-defined daily price boundaries (typically 7%, 13%, 20% for equity index futures) that trigger trading halts when reached — designed to prevent disorderly markets during extreme volatility. | Futures Mechanics |
| Price Limit Rule | A rule restricting trading during exchange-imposed price limit halts (limit-up or limit-down moves) — typically required by firm risk policies during extreme volatility events. | Rules & Risk |
| Mark-to-Market | The daily process where futures positions are valued at the current settlement price and unrealized P&L is converted to realized cash flow — the operational core of how futures clearing works. | Futures Mechanics |
| Settlement Price | The official price set by an exchange at the end of each trading day, used to mark all open positions to market and determine daily P&L for futures contracts. | Futures Mechanics |
| Slippage | The difference between the expected price of a trade and the actual fill price — typically larger on market orders, during volatile conditions, and on illiquid contracts. | Futures Mechanics |
| Rule Breach | Any violation of a prop firm's trading rules — some breaches are warnings, others permanently end the account. | Rules & Risk |
Why traders fail Limit-Up / Limit-Down
Holding overnight through Sunday open / FOMC / NFP / earnings. These are the windows where LULD halts can trigger. Don’t be size during them.
Assuming stop-market will save you during a limit-down move. Stop-market triggers at the next available price after halt. If the gap is 50 points, your stop fills 50 points worse. The stop didn’t fail; the market just gapped through it.
Trying to fade a limit-down move. “It’s down 7%, this has to bounce.” Sometimes it does (V-shaped recovery). Sometimes it doesn’t (continuation to -13%). The asymmetry of being long during a continuing crash isn’t favorable.
Not knowing your firm’s halt policy. Some firms auto-flatten during halts. Some don’t. Some have specific procedures. Read the documentation BEFORE you encounter a halt.
Frequently asked questions about Limit-Up / Limit-Down
What does limit-up / limit-down mean?
Exchange-defined daily price boundaries that, when reached, trigger automatic trading halts. CME equity index futures use 7%, 13%, 20% thresholds (above or below prior settlement). Designed to prevent disorderly markets during extreme volatility.
How long does a limit-up/limit-down halt last?
Level 1 (7%): 15-minute halt, then resume with limit lifted. Level 2 (13%): another 15-minute halt. Level 3 (20%): trading halted for rest of session (during regular trading hours only). Outside regular hours, Level 3 halt may convert differently.
Can I trade during a limit halt?
No. The exchange suspends order entry, modification, and cancellation during halts. Most prop firm trading platforms enforce this — orders sent during halts are rejected.
What happens to my position during a limit halt?
Position remains open (the exchange doesn't auto-close). Some prop firms may flatten positions during halts based on their specific risk policies. When trading reopens, the price often gaps significantly — your position absorbs whatever gap occurs.
How can I avoid being caught in a limit halt?
Don't hold leveraged positions through anticipated volatility events: FOMC, NFP, major geopolitical announcements, Sunday open during global risk events. Reduce size during pre-event windows. Use stop-limit orders rather than stop-market to control fill prices (accept non-fill risk).