Daily Trading Limit

### What is a daily trading limit? - [ ] The minimum number of trades that must occur each day. - [ ] The fixed price at which trades must be executed. - [x] The maximum price range in which a commodity or option can move in a single trading day. - [ ] The average price movement of a commodity or option. > **Explanation:** A daily trading limit is the maximum range in which the price of a commodity or option can move within a single trading day. ### What does an up-limit day signify? - [x] The price of a commodity has reached the upper allowed limit for the day. - [ ] The price of a commodity has fallen to the lower allowed limit for the day. - [ ] The market has not moved significantly in either direction. - [ ] The trading volume has exceeded the average daily volume. > **Explanation:** An up-limit day signifies that the price has increased to the maximum allowable level for that trading day. ### Why are daily trading limits applied in markets? - [ ] To ensure minimum trading volume. - [ ] To eliminate the potential for profit. - [x] To prevent excessive volatility and protect investors. - [ ] To optimize trading times. > **Explanation:** Daily trading limits are applied to prevent excessive volatility and protect investors from sudden, adverse price movements. ### Who determines the daily trading limits for commodities? - [ ] Individual traders - [ ] Government agencies - [x] The exchange where the commodity is traded - [ ] The financial market as a whole > **Explanation:** Daily trading limits are determined by the exchange where the commodity or option is traded. ### What happens if a commodity reaches its daily trading limit early in the day? - [ ] Trading continues normally. - [ ] Prices can exceed the limit if agreed upon. - [x] Trading is halted or restricted for the remainder of the day. - [ ] The daily limit is increased. > **Explanation:** If a commodity reaches its daily trading limit early in the day, trading is typically halted or restricted to prevent further price movement. ### How does a down-limit day affect trading? - [ ] The security cannot be traded for the rest of the month. - [ ] Trading volume must increase. - [x] The security’s price cannot fall below the lower limit set for that day. - [ ] Market hours are extended to balance trades. > **Explanation:** On a down-limit day, the security’s price cannot fall below the lower limit set for that trading day. ### Do daily trading limits apply the same across all financial markets? - [ ] Yes, they are uniformly applied. - [ ] Limits vary only slightly between markets. - [x] No, the application of daily trading limits can vary widely between different financial markets. - [ ] Limits are only applied during market crashes. > **Explanation:** Daily trading limits can vary widely between different financial markets, depending on the structure and regulation of each market. ### What impact do daily trading limits have on market volatility? - [x] They help decrease excessive volatility. - [ ] They increase volatility. - [ ] They have no impact on volatility. - [ ] They only affect volatility in downward markets. > **Explanation:** Daily trading limits help to decrease excessive volatility by capping the amount by which prices can move in a single day. ### Are daily trading limits permanent fixtures in the market? - [ ] Yes, they can never be adjusted. - [ ] They are permanent for certain commodities only. - [x] They can be adjusted based on market conditions and reviews. - [ ] They are for emergency situations only. > **Explanation:** Daily trading limits can be adjusted periodically based on market conditions and regulatory reviews. ### Which term is closely related to the concept of daily trading limits? - [ ] Bear Market - [ ] Short Selling - [x] Circuit Breaker - [ ] Margin Call > **Explanation:** Circuit breakers, similar to daily trading limits, temporarily halt trading to prevent exaggerated market movements and protect market stability.