Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Position Limit

What it is:

Position limit refers to the ceiling placed on the number of contracts on a single security which may be held by an individual or cooperative group.

How it works (Example):

Determined by the Commodity Futures Trading Commission (CFTC), position limits place an upper limit on the number of contracts which an investor or combined group of investors may hold for a specific security. For instance, the CFTC may specify a position limit of no more than 15 contracts per investing party on stock XYZ.

Why it Matters:

By placing constraints on the number of contracts an investing party may hold, position limits ensure fairness in the options market by inhibiting any one investor's degree of control.