Hello, in order to prevent market price manipulation in futures and options markets Market regulators create market position limits. Knowing these limit may help you understand the market structure (if you look precisely into COT reports), as well as representing a company its a vital data for those who open large position in certain markets. If your position is 25+ or 1000+ contracts (depending on the market) you’ll have to report about your doings to the responsible institution. Such limits exist in many countries (for example, UK) but I will concentrate on US markets.

What are the CFTC and US exchanges position limits?

Commodity Futures Trading Commission (if you don’t know what the hell is this, read here about CFTC) with US exchanges created special limits for futures and options market participants. These limits show what position is counted as big and what is the maximum possible position in the futures or option market as a whole or one separate contract, for example cotton futures contract (CT) with expiration date in Dec 2011.

Why they are implemented?

They are implemented in order to look only after big companies and to limit their ability to negatively influence the market price. It means that on the one hand if you are a small entity you can relax and make your speculative or risk management positions, on the other hand if you can influence the market price you will be limited cause it will create unpleasant situation in the market.

Why do I need to know position limits?

Well, if you are connected directly or indirectly with market, credit or volatility risk management it is possible to meet these limits (of course only if part of risk management strategy will be a certain hedge position in US exchanges). Additionally, if you are a trader and you want not only click buttons but to understand the market you must know the market and such position limit knowledge + COT report analysis will give you a view of a certain market as a whole. What market participant exist, how many of them hold the biggest part of the market and etc.

Let’s look deeper into position limits: what types exist and what they exactly mean.

CFTC and US exchanges position limits

I will not copy here any table (you will find links to the tables in the end of the post) because they are too wide. But I will explain the meaning of limit (level) types:

All Month Accountability Level – the position level in all contracts of a certain market at which the exchange may order trader to stop increasing the position in order to prevent price manipulation.

Any One Month Accountability Level – the position level in contract with any expiration date of a certain market at which the exchange may order trader to stop increasing the position in order to prevent price manipulation.

Expiration Month Limit – the position level (in lots/contracts) which cannon be exceeded in the contract with the closest expiration date.*

Any/All Month Limit – the position level (in lots/contracts) which cannon be exceeded in all contracts of a certain market.*

Reporting Level – the position level (in lots/contracts) which reaching company must report about the level of position and its purposes to CFTC on a daily basis.

* possible exemptions for risk management and bonda fide positions.

Where can I find position limits?

Although CFTC is the “ruler” of the US futures and options industry. Position limits can’t be found on their website. They can be found on commodity exchanges website. Luckily for us, during last decade most of the exchanges where overtaken and basically two exchanges left: CME Group and InterContinental Exchange (ICE).

Here you can find position limits:

http://www.cmegroup.com/market-regulation/position-limits/

https://www.theice.com/publicdocs/futures_us_reports/all/Futures_US_Position_Limits.pdf