Position limits are regulatory or exchange-imposed restrictions on the maximum number of contracts or shares that any single entity can hold in a particular market or instrument. These limits prevent market manipulation, ensure orderly markets, and distribute risk across multiple participants. Position limits vary by contract type, market size, and participant classification.

Position limits help maintain competitive markets by preventing excessive concentration of positions that could distort price discovery or create systemic risks. Limits typically apply to futures and options markets, with different thresholds for hedgers versus speculators. Understanding position limits helps traders plan strategies and assess market capacity constraints.

Real-world example: CFTC sets position limits of 3,000 contracts for crude oil futures for any single speculative account, preventing individual traders from accumulating positions large enough to potentially manipulate oil prices or create undue market concentration.