What does it mean when a commodity contract reaches its daily price limit?

What does it mean when a commodity contract reaches its daily price limit?

• A. It continues to trade beyond the limit.
• B. It cannot trade for the rest of the day.
• C. Its price is reset to zero.
• D. It triggers an automatic sell-off.

Answer: (B)

When a commodity contract reaches its daily price limit, it indicates that the price has moved to the maximum extent allowed for that trading day, whether upward or downward. This daily price limit is established to prevent excessive volatility and to maintain an orderly market. Once a contract hits this limit, trading is halted for that specific contract for the remainder of the day. This mechanism is designed to protect traders from extreme price fluctuations and creates a pause in trading to allow market participants to assess the situation before further transactions can occur. Therefore, once the limit is reached, the contract cannot trade anymore until the next trading day.

When a commodity contract reaches its daily price limit, it indicates that the price has moved to the maximum extent allowed for that trading day, whether upward or downward. This daily price limit is established to prevent excessive volatility and to maintain an orderly market. Once a contract hits this limit, trading is halted for that specific contract for the remainder of the day. This mechanism is designed to protect traders from extreme price fluctuations and creates a pause in trading to allow market participants to assess the situation before further transactions can occur. Therefore, once the limit is reached, the contract cannot trade anymore until the next trading day.