Price Limits and if I have the correct Amounts " Per " MAX move ??

M

md2324

I want to please make sure that I have the right Calculations for each of the Attached Markets

Does this mean, that in a WORST CASE SCENARIO , that if a Limit UP/DOWN day occurs, and it moves against me , that the Amount Listed, is What I could stand to Lose, in terms of Real Dollars ?

If so , this is scary ......... As SoyBeans has a MAX Limit move of $5,000

Am I understanding the way in which Limit Up/Down moves are Calculated, and in how they work ?

( Please see the attached Image )

Thanks so much for the help
 

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http://www.investopedia.com/exam-guide/series-3/studyguide/chapter4/price-limits.asp

http://www.cmegroup.com/trading/equity-index/price-limit-guide.html

http://www.cmegroup.com/trading/Price-Limit-Update.html

What you can lose depends on :
- Your exposure (# Contracts)
- # of ticks contained by limits
- Exposition per tick (tick value)

Edit: It's said 1$ Limit for soybeans. Tick size is 1/4 cent valued at 12.5$.
So 12.5$ * 400 is 5K. Your calculations seem accurate =P
That's your Max exposition for holdin' 1 contract.
 
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No... not correct.. that's not you max exposure... the price limits are for determining a trading halt in a highly volatile situation.

So in Soybeans, the trading goes into a halt at $1 move... at that move, you would be down 5k (or up ;)) ... but that doesn't mean you're being stopped out. At reopen, it might go further and you can lose more.

I think you're mistakenly viewing price limits as a stoploss, but limit up/down doesn't have anything to do that.
 
md2324 said:
I want to please make sure that I have the right Calculations for each of the Attached Markets

Does this mean, that in a WORST CASE SCENARIO , that if a Limit UP/DOWN day occurs, and it moves against me , that the Amount Listed, is What I could stand to Lose, in terms of Real Dollars ?

If so , this is scary ......... As SoyBeans has a MAX Limit move of $5,000

Am I understanding the way in which Limit Up/Down moves are Calculated, and in how they work ?

( Please see the attached Image )

Thanks so much for the help
More...
you can lose much more if you get stuck in subsequent limit moves against you...usually will happen in thinner markets like lumber or Orange Juice but I have seen it happen in grains (like soybeans) as well. The limit move is not the max amount you can lose. @JackRab answered correctly.....this is another reason to use stops or if you are longer term/ position trader you can consider using options as a possible hedge.
 
Thank you all very much

I Understand now, with a lot more confidence, about Limit Moves, and what they " Actually " mean

QUESTIONS please.....

1. So if You are in a Trade, and the Limit move happens in the Direction that you hold a Position..... So say you're Long Soybeans and Soybeans has a Limit Up day of $1 move ...... When the Limit is " Lifted : , does this mean that there is a High likeliehood that you Could make a Profit ( on a Per ....1 contract basis ) , upwards of around a $5,000 profit ?

2. I always place a Stop EVERY time I enter a trade.
So for safety reasons, I.E. to protect yourself from suffering a Big Loss if a Limit move against you was to occur ..... What is the Best Kind of Stop to Always place on your trades ...... A Market " Stop " order ?

3. I have heard of Hedging your Position with Options .
If this was a method I wanted to use to Hegdge my Position with , How would this work ?

Say I'm long 1 contract on Corn
Do I then buy 1 Lot of the ATM Puts on Corn ...... with 60 - 90 days ( Minimum ) till Expiration ?

Thanks so much for any and all help and discussion.
This has been very Informative, and I appreciate
 
1. So if You are in a Trade, and the Limit move happens in the Direction that you hold a Position..... So say you're Long Soybeans and Soybeans has a Limit Up day of $1 move ...... When the Limit is " Lifted : , does this mean that there is a High likeliehood that you Could make a Profit ( on a Per ....1 contract basis ) , upwards of around a $5,000 profit ?
More...

If you got long intraday (or below the limit price) then you'll certainly have a nice profit but usually Breakdowns do not happen (Tail event) ! If you bought around the open then it's around 5K profit per contract.

2. I always place a Stop EVERY time I enter a trade.
So for safety reasons, I.E. to protect yourself from suffering a Big Loss if a Limit move against you was to occur ..... What is the Best Kind of Stop to Always place on your trades ...... A Market " Stop " order ?
More...

Stop market are safer than stop limit. Contrary to Stop Limit, your Stop Market order is guaranteed to get filled (Whatever [Price] it takes). Stop Limit reduce risk of slippage (Depends on Order Size and available Liquidity) but do not guarantee your (entire) order to get filled ^^

3. I have heard of Hedging your Position with Options .
If this was a method I wanted to use to Hegdge my Position with , How would this work ?

Say I'm long 1 contract on Corn
Do I then buy 1 Lot of the ATM Puts on Corn ...... with 60 - 90 days ( Minimum ) till Expiration ?
More...

Hedging with options is a nice way to reduce your risk by paying for an insurance. I can't tell more about hedging with option because I don't perform it. Usually you hedge medium to long term trades (Not intraday ones). You need to know the greeks for that and dynamic adjustement. It's doable. A great book about options is Natenberg's Options Volatility & Pricing.
 
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