Recently, a friend asked me about the concept of limit up, and I realized that many beginners are still quite unfamiliar with these stock-market mechanisms. In plain terms, limit up means the stock price has risen to the maximum allowed increase, and it can’t go any higher.

Taking the Taiwan stock market as an example: TSMC closed yesterday at 600. Today, it can rise by at most to 660—that’s a limit up. Conversely, the lowest it can fall is 540, which is called a limit down. In the Taiwan stock market, the daily price change can’t exceed 10% of the previous day’s closing price. When you look at the candlestick chart, stocks that hit the limit up will appear as a straight line—buy orders are piled up like mountains, but there are almost no sell orders. At that point, the number of people who want to buy is far greater than the number of people who want to sell.

One question that many people can’t figure out is—when a stock is at the limit up, can you buy and sell? The answer is yes. Hitting the limit up doesn’t lock trading, and you can still place orders. But there’s a catch: when you want to buy, your order may not be filled, because before the limit-up price there are already a large number of buy orders waiting in line. On the other hand, if you want to sell, it will be filled instantly, because so many people are trying to offload and become buyers’ counterparts.

The logic behind a limit down is completely the reverse. At this time, sell orders are overflowing, while buy orders are scarce. If you want to buy, it will be filled immediately, but if you want to sell, you’ll have to queue and it may not get filled.

What’s interesting is that the mechanisms differ a lot across markets. In Hong Kong and the U.S., there’s basically no such thing as limit up; they use circuit breakers instead. For the U.S. major index circuit breakers, it works like this: when the S&P 500 drops 7%, trading pauses for 15 minutes; if it drops 13%, trading pauses for 15 minutes again; but if it falls to 20%, trading closes for the day. Individual stocks also have circuit breakers: if a stock’s price rises or falls more than 5% within 15 seconds, trading is paused for 5 minutes.

One of the biggest mistakes I’ve seen many beginners make is chasing rallies and selling in panic. When a stock hits the limit up, they rush in to buy; when it hits the limit down, they get scared and quickly sell. Actually, it should be considered the other way around—what’s behind the limit up? Is it genuine positive news, or is it just hype? If the company’s fundamentals are sound and what’s happening is only short-term sentiment-driven volatility that has pushed it to the limit down, then this can be an opportunity.

Another trading idea is: when a stock hits the limit up, you can look at other stocks in the related industry chain. For example, if TSMC hits the limit up, other semiconductor stocks will often rise along with it. This way, you can bypass the limit-up restriction.

And if you genuinely really want to buy when a stock is at the limit up, there are other tools you can use. For example, stock derivatives, futures, or products like contracts for difference. Contracts for difference are especially flexible: they have no limit on price rise or fall, and leverage is relatively high, so you can control a larger position with a smaller amount of capital. Also, you can trade 24 hours a day, not restricted by stock market opening hours. Most importantly, they support two-way trading: if you expect prices to rise, you go long; if you expect them to fall, you go short—so there are opportunities to profit whether the market goes up or down.

Overall, while limit up limits the upside of a stock’s price, it is also a form of market protection. Understand the logic behind limit up, and pair it with some derivative tools, and your investment options can become much more flexible.