Limit up and limit down

What is limit up and limit down?

Limit up and limit down are the highest and lowest prices an exchange allows a share or futures contract to trade at during a session, set as a fixed band around a reference price.

When the price reaches the top of the band, the instrument is "limit up". When it reaches the bottom, it is "limit down". In Pakistan, stock market news usually calls these an upper circuit and a lower circuit.

In Pakistan, trading in listed shares and commodities is supervised by the Securities and Exchange Commission of Pakistan (SECP), with trading in listed securities and commodities only via SECP-licensed securities and futures brokers.

How the limit levels are calculated

The exchange publishes the reference price and the band for each instrument. The reference price is usually the previous session's closing or settlement price. The band is a percentage or a fixed amount. The rules differ by exchange and by product, so check the exchange's own rulebook for current values.

• Upper limit = reference price + (reference price × band percentage)
• Lower limit = reference price − (reference price × band percentage)

Worked example (hypothetical)

A share closed yesterday at a reference price. Its exchange applies a percentage band to that price.

1. Today, positive news arrives and buyers keep bidding higher.
2. The price rises until it equals the upper limit. The share is now at its upper circuit.
3. Buy orders can still be placed at the limit price, but no trade can happen above it. If almost nobody is willing to sell at that price, buy orders queue and many stay unfilled.
4. The next session gets a new reference price. The price can then open with a gap, either further in the same direction or back the other way.

A lower circuit works in reverse. Sellers queue at the lower limit and may not find buyers.

Where you see the term

• News and exchange reports: for example, "the stock hit its upper circuit" or "wheat futures closed limit down".
• Trading terminals: exchange market-watch screens often show the upper and lower limit next to the last price. A locked instrument may show orders only on one side.
• Futures specifications: the contract details list the daily price limit, sometimes with rules for widening it.

Formal definition and edge cases

• Locked limit: the price sits at the limit with heavy one-sided orders. Positions on the losing side may not be closed until the price moves off the limit or the next session opens.
• Expanding limits: some futures exchanges widen the band after a session closes at the limit.
• Contract coverage: limits may apply to the front month differently from later months, or be lifted close to expiry.
• US equities LULD: in the United States, "Limit Up-Limit Down" is also the name of a plan that sets rolling price bands for individual stocks. A short trading pause follows if a price stays outside the band. This differs from a fixed daily limit.
• Circuit breaker vs price limit: a circuit breaker halts a whole market or index after a large move. A price limit caps the price of a single instrument.
• CFDs: a CFD (contract for difference) quoted on a limited underlying may be frozen, widened or set to close-only by the provider. Check each provider's own rules.

When a market is locked, stop orders may not execute at the level you set. Leveraged trading can lose money fast in these conditions. See risk management.

Related terms

• Circuit breaker
• Flash crash
• Opening and closing auctions
• Fill and partial fill
• Day order
• Derivatives
• Trading glossary

Frequent questions

Is upper circuit the same as limit up?

Yes. "Upper circuit" is the common term in Pakistani and South Asian stock market news. "Limit up" is the common term in futures markets.

Does trading stop at limit up?

Not always. Trades can usually still happen at the limit price, but not beyond it. Under some rules, such as the US LULD plan, a pause follows.

Can I sell a share that is at its lower circuit?

You can place a sell order at the limit price. It only fills if a buyer takes the other side, so it may stay unfilled.

Why do exchanges use price limits?

Exchanges use them to slow sharp moves, give traders time to react to news, and reduce disorderly trading.