Locked Limit UP

Discussion in 'Ag Futures' started by Fazer, Feb 1, 2013.

  1. Fazer

    Fazer Guest

    What do you do and what does your broker do when you are under-margined using day margins when a long position is locked-limit up? The position is making money but not enough money to hold it using overnight margin. e.g Lumber recently
  2. 1) Oh God! Lumber has daytrade margining available? :confused: :eek:
    2) But seriously, I'll assume you are speaking hypothetically. If you have an open position that has locked-limit to your benefit, logic would imply that you should offset the position and/or your firm would automatically offset the position for you because there is no more upside during the current session for you as a trader using daytrade margins. Your firm will not carry the position overnight for you even if there's a strong possibility of a follow-thru gap on the next session's open. :cool:
    3) You would have to have enough available cash in your account to margin the position at overnight levels in order to maintain it. :(
  3. Before the close your position gets sold to the first person in line with a buy order.

    You make their day.
  4. You might have been able to make more via an offsetting synthetic sale using options. This would have reduced your margin to a small amount or nothing.

    Or buy a put to reduce the margin if you want to hold the position.

    There appear to be lumber options. Although they are thinly traded, you still might have gotten a fill.
  5. Fazer

    Fazer Guest

    Thanks Guys - if broker is able to offset position it means then market that is locked limit is not really locked. I thought no trading at all was allowed until next day. So I can sell the long position even if its limit up - just no buying allowed.

    One more does it mean short selling is allowed if its limit up?
  6. 1) If a market is "locked limit up", it is also said to be "limit bid". Trading can still take place at the upper limit price. The "strength" of the limit-bid can be gauged based on where the market is "synthetically" trading according to the options. The higher the synthetic price above the limit, the larger the pool of bids is likely to be at the limit. It would make little sense to offset a long-position or initiate a short-sale at the limit price. You can also get an idea of how much higher the market might open up at the start of the next session based on the synthetic price. :cool:
    2) If you're an undercapitalized daytrader, you should get out at the limit price. If the market reverses and collapses off of the limit, you could keep trading for the rest of the day, provided the market doesn't go to the lower-limit or rallies back uplimit. :)
    3) You may be confusing a limit-move with a trading halt in the stock market. :confused:
  7. I hope to god you aren't day trading lumber. There is like no liquidity.
  8. Fazer

    Fazer Guest

    Great responses - thank you all especially Nazz.

    No I'm not really day-trading lumber its was just a recent example of a market that got locked limit. Its quite common though in grains and softs. My reason for asking is because I'm planning to load up grains like corn, soybeans etc and some softs using reduced day trade margins then liquidating positions end of day to comply with overnight margin.

    I wasn't sure what would happen if market got locked limit in direction of my trade. You might say what about downside, well i protect myself by making sure my stops are well within the limit price move listed on contract specs to avoid margin call.

    So as Nazz says it different to trading halt like in say ES/YM when no trading actually takes place during the specified period.