What it is:
How it works (Example):
Let's say a forward contract on Company XYZ has a trading limit of X. Accordingly, if the exceeds X during the trading day, a "locked market" occurs, and trading in the contract halts.
China has aof 0.5% on its national , meaning that if the price changes more than 0.5% in either direction during the day, trading is halted until the next day.
Why it Matters:
Locked markets prevent extreme volatility or price manipulation in the markets. If trading approaches the upper level of daily trading limit, we say the security had a "down limit" day.