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MadMarketScientist

Daily Trading Limit Definition

By MadMarketScientist, in Trading Dictionary

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MadMarketScientist    11

MadMarketScientist
Posted

Daily trading limits can occur as a result of the inherent behavior of the underlying asset, or they can be fixed artificially by the regulatory authorities by setting a price floor and a price ceiling. Some stock exchanges like the Nigerian Stock Exchange operate a daily trading limit where the maximum rise or fall of an underlying asset is pegged at 5%. This is an example of an artificially induced daily trading limit. Some currencies tend to trade within a range. The Hong Kong Dollar and Singaporean Dollar is an example, but again this is a function of the actions of the central banks of these countries. Intraday traders are usually advised to trade with caution on assets that have daily trading limits as the restrictions on the daily movements of the underlying assets restrict profitability on intraday trades.

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