Limit up refers to the maximum allowable increase in the price of a security or commodity during a single trading session, as set by exchange regulations. When a security or commodity reaches its limit up price, trading may be halted or restricted to prevent further ascent for a specified period. This mechanism is in place to curb excessive volatility and irrational exuberance in the markets.
The purpose of limit up (and its counterpart, “limit down”) rules is to provide a cooling-off period for markets, allowing traders and investors to reassess the situation, absorb relevant news, and make more informed decisions, thereby preventing extreme price swings that could be driven by panic buying or selling.
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