Futures contracts are like that old broken-down car you used to put-put around in during high school: it will only go so far on a given trip. If your car traveled more than 20 miles in one go, the engine would sputter out and you'd have to push it into the nearest parking lot.
For a futures contract, there are price limits imposed by the exchange. The price can only move so far on a single day. If it reaches its limit, trading halts come into effect and prices aren't allowed to move further until the next day. Imposing limits keeps volatility under control; prices can only move so far, so fast. However, it also complicates the basic function of a market: to discover the appropriate price for something.
The variable price limit helps make that price discovery aspect go more smoothly. A futures contract reaches its price limit on a day. The next day, the price limit gets changed to the variable price limit. It provides a wider trading band for the contract, allowing it to move further than it did on the previous day.
So...say a futures contract has a price limit of $2 and a variable price limit of $4. On Monday, the contract rises from $10 to $12, triggering the price limit. On Tuesday, the limit widens to the variable amount...$4. Now the contract can rise to $16 or fall to $8 before the limit gets reached.
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Finance: What is an All or None Order?70 Views
finance a la shmoop what is an all-or-none order oh you'd think that
spoiled brats only live on playgrounds of participation trophy cities hmm but [Boys holding participation trophies]
that is oh so sadly not true they roam the wild hallways of Wall Street
investment firms in droves and all-or-none order means that a buyer or
seller of stock either wants all of their shares bought or sold or none of
them and yes this applies to bonds preferred stocks and other random [Man discussing stocks and bonds]
hybrids as well.....A buyer has a portfolio of 500 million dollars in small cap
growth stocks generally speaking she's told her clients that she won't take
less than a 2% position in anything because she wants to be able to focus on
a core group of stocks and really be on top of any big movements hoping to sell [Stocks in a sack land on a table]
the shares before well, any huge problems holding so in this case she's
found a company she loves an appropriately named coal company for [Woman looking through binoculars in her car]
spoiled investors called mine mine mine the only problem is that the stock is
thinly traded that is not a ton of shares trade every day and she needs to
own either ten million dollars worth of stock which would be a two percent
position or she doesn't want to own any the stock at the moment is trading at
ten dollars and seven cents a share and she wants it at ten bucks or better...
well at ten dollars and one penny she has no interest whatsoever in that stock [Stock graph for mine mine mine company]
at 10.00 she's a buyer so that is her limit order but on this all-or-none
order she waits and waits and waits knowing that sometimes all-or-none [Woman looking at laptop waiting for the stocks]
orders simply never get filled other times they get filled scarily too fast
like the seller knew something the buyer did not but along comes a bad market day
the White House says something stupid what are the odds? and the market tanks for
an hour and blam she is the proud new owner of a million shares of mine mine
mine good for her those shares are now all hers hers hers [Pigeon poops on mans head]
Up Next
What is a limit order, and how can we be sure we never have one of those in place when we go to a doughnut shop?