Exchange Limits - Good Thing ?

[local_crusher]

Nearly all US Exchanges impose daily trading bands on some products, namely the index products (CME, Globex), agricultural products and so on.

In my opinion, markets are so stable these days, that artifically truncating price movement makes no longer sense.

The Wheat move last week is a good example, in my opinion.

Also, it's an U.S. phenomenon.
Of course, politics will play a role here as well.

European exchanges follow a more liberal policy.

What do you think - should this policy be loosened ?

 

[FightTheFuture]

Might be best to get rid of the limits or at least increase the limits much more. The market should determine price movement without interference.

Seems like if the market wants to drop 30% it will anyway with or without limits.

Some think it would be much more difficult for the retail trader to have trades filled if limits are placed because of the big players and their programmed trades all making a mad rush before the limits are hit and trading is halted. Then when trading resumes, the same thing happens to the next curb.

 

[local_crusher]

Wow what incredible interest in my poll

I just wanted to hear what others think.

 

[nazzdack]

The price limits for grains were expanded a few years ago. It was a good idea. Considering the leverage involved with futures, price limits have merit. They can keep some undercapitalized traders from getting into too much trouble. As an extreme example, you want to avoid a situation like the expiration of the March/1996/Wheat when the market rallied from ~$5/bushel up to $7.50/bushel in two minutes because of an order imbalance. If the same thing had happened in the deferred months, the contract could have been "destroyed". The multiple downside limits in the CME stock indices are a better way to go because they have a much larger tradeable range during the session instead of a single fixed price limit as in grains. As another extreme example, those multiple limits kicked-in once back in ~April-2000 with good effect.