DEFINITION of 'Position Limit'

The highest number of options or futures contracts an investor is allowed to hold on one underlying security. Exchanges and/or regulatory bodies establish different position limits for each contract based on trading volume and underlying share quantity. The Chicago Board Options Exchange is one entity that calculates position limits for options exchanges.

BREAKING DOWN 'Position Limit'

Position limits are created for the purpose of maintaining stable and fair markets. Contracts held by one individual investor with different brokers may be combined in order to accurately gauge the level of control held by one party.


Wall Street reform regulations enacted in the aftermath of the financial crisis of 2008 required the Commodity Futures Trading Commission to establish position limits for commodity futures and swaps.

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RELATED FAQS
  1. How do the investment risks differ between options and futures?

    Learn what differences exist between futures and options contracts and how each can be used to hedge against investment risk ... Read Answer >>
  2. How can a futures trader exit a position prior to expiration?

    A futures contract is an agreement to buy or sell a commodity at a pre-determined price and quantity at a future date in ... Read Answer >>
  3. What is the difference between open interest and volume?

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  4. Does the seller (the writer) of an option determine the details of the option contract?

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