What defines position limits?

Position limits are essential in trading as they specify the maximum number of contracts that a participant is allowed to hold in a specific product. This ensures market integrity by preventing any single participant from accumulating excessive market power or influencing prices in a way that could be detrimental to the overall market.

The maximum limit helps to maintain a level playing field, reducing the risk of market manipulation and fostering fair competition. It is a regulatory measure designed to ensure that no trader can dominate a market segment, thereby protecting the interests of all market participants. In essence, having a clear definition of position limits helps to stabilize markets and promotes healthy trading practices.