How to ensure I am not trading within 2% of a Price Limit?

Table of Contents:

• What are CME Price Limits?
• How do I know what the CME Price Limits are for the contracts I trade? 
• How Do I Ensure I Don't Trade Within 2% of a Price Limit?
• How to find the % Net Change for the contract I am trading?
• Why is Topstep enforcing this Prohibited Conduct in the Funded Account?

What are CME Price Limits?

A price limit is the maximum price range permitted for a futures contract in each trading session. When markets hit the price limit, different actions occur depending on the product being traded. Markets may temporarily halt until price limits can be expanded, remain in a limit condition, or stop trading for the day based on regulatory rules.

This Prohibited Conduct is enforced in the following accounts: Express Funded Account™, Legacy Funded Account, Pro Account®, & Premium Funded Account®.

How do I know what the CME Price Limits are for the contracts I trade? 

• First off, it’s good to know that Price Limits are calculated based on the end-of-day settlement price and vary by product, contract month, and time of day (i.e. Overnight Price Limits differ from the Price Limits used during business hours).
  
• The Price Limits are updated at 4:05 PM CT after each trading session and can be found on the CME Price Limits page.

Below is an example of Price Limits for the ESM0 contract during the 5/14/2020 trading session. They are based on the Settlement Price from 5/13/2020, which was 2814.00.

How Do I Ensure I Don't Trade Within 2% of a Price Limit?

Important Update(s):

Equity Products ES, MES, NQ, MNQ, RTY, M2K, YM, and MYM overnight price limits have expanded from 5% to 7%.

One of the easiest ways to ensure you are not trading within 2% of any Price Limit would be to watch the % Net Change for the contract you are participating in via your trading platform quote board. 

• Example 1: Assume you are trading the ESM0 contract between 5:00 PM CT on 5/13/2020 and 8:30 AM CT on 5/14/2020, the price limit is 5% up or down. You should not be trading ESM0 if the % Net Change on the day exceeds 3% up or down (5% Price Limit minus the 2% Topstep threshold). 
  
• Example 2: Assume you are trading the ESM0 at 9:00 AM CT on 5/14/2020, the price limit is now 7% (down only). You should not be trading ESM0 if the % Net Change on the day exceeds 5% (7% Price Limit minus the 2% Topstep threshold) down. 
  

Another method to find your limits would be to calculate them based on the Settlement Price. You would need to know the previous day’s Settlement Price along with the % up and/or down that triggers the next Price Limit based on the time you are trading. 

• Example 1: The Settlement Price for the ESM0 contract on 5/13/2020 was 2814.00. If you are trading when the Price Limit is 5% up and down you can make the following calculation to identify the levels that are within 2% of a Price Limit that you should stop trading at:
  • Level Above to Stop Trading: 2814*(1 + 5% - 2%) = 2,898
  • Level Below to Stop Trading: 2814*(1 - 5% + 2%) = 2,730
    
• Example 2: Again, the settlement price for ESM0 on 5/13/2020 was 2814.00. If you are trading when the Price Limit is 7% down, you can make the following calculation to identify the levels that are 2% within a Price Limit that you should stop trading at.
  • Level Above to Stop Trading: n/a
  • Level Below to Stop Trading: 2814*(1 - 7% + 2%) = 2673

The above image shows a hypothetical visual for ES with a 7% Price Limit. From the previous day's settlement, trading is allowed until ES reaches -5% net change on the day (2% away from the 7% Price Limit). If the net change on the day for ES has exceeded a 5% move, then no trading is allowed.

How to find the % Net Change for the contract I am trading?

Your trading platform’s Quote Board/Radar Screen not only displays the “Net Change” on the day as prices move, but it can also display “Net Change” as a percentage or “% Net Change.” If the “% Net Change” is not currently displayed on your Quote Board, simply add that column to display how close your product is to the Price Limit. 

Why is Topstep® enforcing this Prohibited Conduct?

In an effort to protect our firm and our traders, we will not allow market participation when a product is trading within 2% of a Price Limit. This Prohibited Conduct is enforced in the following accounts: Express Funded Account™, Legacy Funded Account, Pro Account®, & Premium Funded Account®.

In addition, all speculators assuming risk in a market should know that market intimately. It is important to be aware of the Contract Specifications and Price Limits for any product you trade.

For more information about your favorite products, please reference the CME Group website. Click on your product from the home page for detailed information.