Limit up / limit down.
In plain English
Limit up limit down is a national market system mechanism that sets a price band around a rolling reference price for each security. Orders that would execute outside that band are simply not allowed to trade. If the market sits at a band edge without moving back inside for a set period, the stock enters a short pause and then reopens with a recalculated band. The bands are wider for lower-priced and less liquid stocks, and wider again near the open and the close. The goal is to stop erroneous orders and momentary illiquidity from printing prices that everyone agrees are wrong.
01Why it matters
These bands are why a stop order can fail to fill during a violent move, and why the flash prints of an earlier era are far less common now.
02The math, step by step
Say a stock's reference price is 50 dollars and the band is 5 percent, so trades are allowed between 47.50 and 52.50. A sell order at 44 sits unexecuted rather than printing. If the stock stays pinned at 47.50 for the required window, it pauses, then reopens with a new band.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
It is not the same trigger. Limit up limit down applies to one security at a time and is based on that security's own recent prices. Market-wide circuit breakers halt every listed stock at once, based on a broad index decline.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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