Position limit
A position limit is a regulatory cap on the number of or a single trader, or a group of traders acting together, is allowed to hold in a particular underlying commodity or security. Limits are set and enforced by exchanges and by regulators such as the for markets, and they apply separately to each contract month or to combined positions across an expiration cycle, depending on the rule.
The purpose of position limits is to prevent any single trader from accumulating a position large enough to manipulate a market or create excessive relative to the size of the underlying market. Without such limits, a large enough trader could in theory corner a physical commodity market or distort prices simply through the size of their own trading activity, rather than through genuine supply and demand.
Position limits matter most to large institutional traders, commercial hedgers, and funds running sizable books, since rarely trade in size large enough to approach them. Exchanges typically grant higher limits, or exemptions, to bona fide hedgers such as producers and commercial users of a commodity who need larger positions to manage real business risk, while purely speculative accounts face tighter caps. Breaching a position limit can result in an exchange or regulator forcing a trader to reduce the position, along with potential fines or other enforcement action.