Lower Limit Price

Definition

The Lower Limit Price is the minimum price level to which a stock is allowed to decline in a single trading session. * South Korea: The floor is set at -30% from the previous day's close. * Once the price hits this level, sellers can offer shares at this price, but no trades can occur below it.

The Liquidity Trap

Hitting the lower limit (Limit Down) creates a liquidity crisis for holders. * If a stock is "locked limit down," there is an overwhelming number of sell orders and zero buy orders. * Trapped: Investors want to exit to stop the bleeding, but they physically cannot sell their shares. They have to wait until the next day, where the price might gap down again.

Terminology: "Catching a Falling Knife"

• While there is a strategy called "Ha-Tta" in Korea (buying at the lower limit), in English, this is famously warned against as "Catching a falling knife."
• It means buying an asset that is rapidly declining in price. Just because it hit the limit doesn't mean it's cheap; it often means something is fundamentally broken.

US Context

• In the US markets, there is no hard price floor. A stock can theoretically go to zero in a single day.
• Instead, LULD (Limit Up-Limit Down) rules pause trading to prevent irrational panic, but they do not stop the eventual devaluation of the asset.