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.
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Cached on May 24, 2012, 10:47 am