Define 'position limits'.

Position limits refer to regulatory restrictions imposed on the maximum number of contracts that a trader can hold in a particular commodity. These limits are established to prevent market manipulation, reduce systemic risk, and ensure fair trading practices. Position limits are particularly significant in futures and options trading, where excessive concentration of positions can lead to increased volatility and potential market disruptions.

By setting these limits, regulatory bodies aim to promote market integrity and protect the interests of all participants. Traders must be aware of and adhere to these limits to ensure compliance and to maintain orderly markets. This understanding is crucial for anyone involved in commodity trading, as it directly affects their trading strategies and risk management practices.