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Strategy Managers: Get ready for position size limits

As you may have read in the “What’s New” section, Collective2 will soon need to respect position and trade size limits that are being imposed on us by the regulated futures exchanges.

These size limits may affect your strategy’s Model Account, and the futures positions you may open within it.

Whom this applies to

For most strategies, and for most futures symbols, quantity limits will probably not apply.

However, if you run a popular strategy followed by many AutoTraders, and/or if you attempt to trade a futures symbol with limited market liquidity, you may soon find your ability to increase position sizes in those contracts is restricted.

Every strategy will have different position size limits, based on subscribers. Also, the size limits for each futures contract may change daily, based on market trading volumes.

To summarize important points:

  • If you are an AutoTrader / subscriber, this does not apply to you. You do not need to worry about these kinds of regulatory size limits. Limits are taken care of at the “Model Account” level, and are the responsibility of the Strategy Manager.

  • If you are a Strategy Manager, typically you will see very few restrictions for most contracts.

You can begin to familiarize yourself with size limitations for each of your strategies by going to your strategy page, and then Manage -> Position size limits, like this:

Restrictions will begin rolling out over the next week.

2 Likes

Hi Matthew,

It appears that my strategy does not allow trading in about 1/2 or the available futures products. This includes both the AUD/USD and GBP/USD futures, both of which I use frequently in my strategy. Can you please help me understand more specifically why this is an issue for my subscribers?

Happy to take this to a personal message format if preferred.

Thanks,
The ACE

What are the restrictions like for popular symbols like NQ, ES, YM, CL, GC, etc ?

Also, how does this work? If NQ is 10, and the trader places 3, and we have 500% in our account, it’ll trade 10 instead off 15?

Do you have more details on how this works and also how it’s affected by the number of subscribers? Is it capped per original size by the trader, or is it capped per account or is it capped per total # of subscribers? Thanks

Hi, D_Financial:

The CME has taken the position that prices are not allowed to change too much on their futures exchanges. In fact, they have fined Collective2 a lot of money (a lot for us) for allowing too many trades to be placed on their exchanges, if those trades cause prices to move too much.

We’ve been working with the CME to try to decrease the chance that mighty Collective2 is able to affect prices on the CME too much. Thus the position size limits we’ve recently imposed on Strategy Managers.

Now, as to where these position size limits come from:

Every strategy on Collective2 has different position size limits for different futures contracts. (Some strategies have no effective limits.) The limits are based on the aggregate size of trades being placed by subscribers following your strategies (not solely the number of subscribers, but also the amount of capital they’re deploying when following your strategy). The position limits also based on the trading volume and liquidity of each individual contract.

These limits will change day by day, as contract volumes change, and as you gain or lose subscribers. So I recommend you check your strategy’s individual position size limits every now and then.

In a sense, the fact that you find these position size limits unpleasant is actually a sign of your success. Congratulations! You are now operating a strategy at such a level that you could possibly attract the interest of the CME and its investigators.

Collective2’s imposing of size limits on your strategy is really just a way to keep you safe. The goal is to make sure that when you issue trade signals, your strategy does not move markets much.

Now, sure, it’s a bit weird that a number of futures contracts are effectively untradable for you (right now). I agree: that stinks. But it’s really an indictment of the market liquidity on the CME for some of these contracts. And it’s a reminder about the CME’s official policy about price movement being based on supply and demand (they’re against it).

We’re having an ongoing discussion with CME regulators about these restrictions, so it’s possible the trading size limits might be loosened as these discussions move forward.

Collective2’s goal is to be a responsible participant in the U.S. financial markets, and to cooperate with regulators. The truth is, what we’re doing here at Collective2 is to pioneer a new frontier in financial markets. Regulations can sometimes take a while to catch up with new technologies and business models. It’s my hope that, over time, Collective2 (and all the people that use Collective2) can reach a satisfactory understanding with the CME and regulators.

For now, we need to try to work within these restrictions to the best of our ability.

– Matthew

P.S. As I will reply to Mike in a separate post, these restrictions are not something that subscribers need to worry about. Size limits only directly affect strategy managers. In effect it becomes the strategy manager’s job to operate within size limits, not the subscriber’s job.

I just checked again this morning and it looks like my list has changed and I’m now able to trade a certain amount of contract in the major currency futures. However, I’m still not able to trade the E-MINI CRUDE OIL futures contract @QM or /QM. It would be helpful to understand the specific issue that prevents this as I know it isn’t liquidity or buying power.

Please see my post to D_financial.

Basically: position size limits do not directly affect you, the subscriber. They are something the strategy manager needs to be aware of.

Size limits do not place any restrictions on the size of trades within your subscriber brokerage account. For example, if there is a position size limit on some obscure futures contract, the limitation is imposed on the Strategy Manager’s Model Account – not on how you (subscriber) trade, nor on your brokerage account. You will still follow the trades in your brokerage account at the exact Scaling % you have specified.

Thanks for the response Matthew. I understand that you are just implementing rules from the CME, I’m just confused on how crude oil / @QM could possibly be impacted by a few subscribers and the level of AUM that my system currently has. It is one of the most liquid markets in the world.

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