Regulators and exchanges typically impose limits on the number of commodity positions any customer may maintain with the intent of controlling excessive speculation, deterring market manipulation, ensuring sufficient market liquidity for bona fide hedgers and to prevent disruptions to the price discovery function of the underlying market. These limits are intended as strict caps, with no one account or group of related accounts allowed to aggregate or maintain a position in excess of the stated limit. Outlined below is an overview of the various limit types, calculation considerations, enforcement and links for finding additional information.

I. POSITION LIMIT TYPES

Position limits generally fall into one of the following 4 categories:

1. All Months Limit - apply to the account holder's positions summed across all delivery months for a given contract (e.g. positions in CBOT Oat futures contract for the Mar, May, Jul, Sep and Dec delivery months combined).

2. Single Month Limit - apply to the account holder's positions in any given futures delivery month (e.g. positions in CBOT Oat futures contract for any of the Mar, May, Jul, Sep and Dec delivery months). Note that in certain instances, the limit may vary by delivery month.

3. Spot Month Limit - apply to the account holder's positions in the contract month currently in delivery. For example, the March contract month for a product having delivery months of March, June, September and December, while considered a nearby month at the start of the year, does not become a spot month contract for position limit purposes until the date it actually enters delivery. Most spot month limits become effective at the close of trading on the day prior to the First Notice Date (e.g., if the First Notice Date for a Dec contract is the last trading date of the prior month, then the spot month limit would apply as of the close of business on Nov 29th). In other instances, the limit goes into effect or tightens during the last 3-10 days of trading.

4. Expiration Month Limit - expiration month limits apply to the account holder's positions in the contract currently in its last month of trading.  Most expiration month limits become effective at the open of trading on the first business day of the last trading month.  If the contract ceases trading before delivery begins, then the expiration month may precede the delivery month. (e.g., if the last trade date for a Dec contract is Nov 30th, then the expiration month limit would apply as Nov 1st). In other instances, the limit goes into effect or tightens during the last 3-10 days of trading.

II. CALCULATION CONSIDERATIONS

- Position limits are determined by aggregating option and futures contracts. In the case of option contracts, the position is converted to an equivalent futures position based upon the delta calculations provided by the exchange.

- Positions in contracts with non-standard notional values (e.g. mini-sized contracts) are normalized prior to aggregation.

- Most limits are applied on a net position basis (long - short) although certain are applied on a gross position basis (long + short). For purposes of determining the net or gross position, long calls and short puts are considered equivalent to long futures positions (subject to the delta adjustment) and short calls and long puts equivalent to short futures positions.

- Limits are imposed on both an intra-day and end of day basis.

III. ENFORCING LIMITS

IB acts to prevent account holders from entering into transactions which would result in a position limit violation. This process includes monitoring account activity, sending a series of notifications intended to allow the account holder to self-manage exposure and placing trading restrictions upon accounts approaching a limit. Examples of notifications which are sent via email, TWS bulletin and Message Center are as follows:

1. Information Level - sent when the position exceeds 50% of the limit. Intended to inform as to the existence of the position limit and its level.

2. Warning Level - sent when the position exceeds 70% of the limit. Intended to provide advance warning that account will be subject to trading restrictions should exposure increase to 90%.

3. Restriction Level - sent when the position exceeds 90% of the limit. Provides notice that account is restricted to closing transactions until exposure has been reduced to 85%.

IV. ADDITIONAL INFORMATION

For additional information, including various exchange rules position limit thresholds by contract and limit type, please refer to the following website links:

CFE ( Rule 412) - http://cfe.cboe.com/publish/CFERuleBook/CFERuleBook.pdf

CME (Rule 559) - http://www.cmegroup.com/rulebook/CME/index.html

CME (CBOT Rule 559) - http://www.cmegroup.com/rulebook/CBOT/index.html

CME (NYMEX Rule 559) - http://www.cmegroup.com/rulebook/NYMEX/index.html

ELX Futures (Rule IV-11) - http://www.elxfutures.com/PDFs/Rulebooks/ELX-FUTURES-RULEBOOK.aspx

ICE US / NYBOT (Rules 6.26 to 6.28) - https://www.theice.com/publicdocs/rulebooks/futures_us/6_Regulatory.pdf

NYSE LIFFE (Rule 420) - http://www.nyseliffeus.com/rulebook

OneChicago (Rule 414) - http://www.onechicago.com/wp-content/uploads/rules/OneChicago_Current_Rulebook.pdf

Account holders are encouraged to routinely monitor their order submissions with the objective of optimizing efficiency and minimizing 'wasted' or non-executed orders.  As inefficient orders have the potential to consume a disproportionate amount of system resources. IB measures the effectiveness of client orders through the Order Efficiency Ratio (OER).  This ratio compares aggregate daily order activity relative to that portion of activity which results in an execution and is determined as follows:

OER = (Order Submissions + Order Revisions + Order Cancellations) / (Executed Orders + 1)

Outlined below is a list of considerations which can assist with optimizing (reducing) one's OER:

1. Cancellation of Day Orders - strategies which use 'Day' as the Time in Force setting and are restricted to Regular Trading Hours should not initiate order cancellations after 16:00 ET, but rather rely upon IB processes which automatically act to cancel such orders. While the client initiated cancellation request which serve to increase the OER, IB's cancellation will not.

2. Modification vs. Cancellation - logic which acts to cancel and subsequently replace orders should be substituted with logic which simply modifies the existing orders. This will serve to reduce the process from two order actions to a single order action, thereby improving the OER.

3. Conditional Orders - when utilizing strategies which involve the pricing of one product relative to another, consideration should be given to minimizing unnecessary price and quantity order modifications. As an example, an order modification based upon a price change should only be triggered if the prior price is no longer competitive and the new suggested price is competitive.

4. Meaningful Revisions – logic which serves to modify existing orders without substantially increasing the likelihood of the modified order interacting with the NBBO should be avoided. An example of this would be the modification of a buy order from $30.50 to $30.55 on a stock having a bid-ask of $31.25 - $31.26.

5. RTH Orders – logic which modifies orders set to execute solely during Regular Trading Hours based upon price changes taking place outside those hours should be optimized to only make such modifications during or just prior to the time at which the orders are activated.

6. Order Stacking - Any strategy that incorporates and transmits the stacking of orders on the same side of a particular underlying should minimize transmitting those that are not immediately marketable until the orders which have a greater likelihood of interacting with the NBBO have executed.

7. Use of IB Order Types - as the revision logic embedded within IB-supported order types is not considered an order action for the purposes of the OER, consideration should be given to using IB order types, whenever practical, as opposed to replicating such logic within the client order management logic. Logic which is commonly initiated by clients and whose behavior can be readily replicated by IB order types include: the dynamic management of orders expressed in terms of an options implied volatility (Volatility Orders), orders to set a stop price at a fixed amount relative to the market price (Trailing Stop Orders), and orders designed to automatically maintain a limit price relative to the NBBO (Pegged-to-Market Orders).

The above is not intended to be an exhaustive list of steps for optimizing one's orders but rather those which address the most frequently observed inefficiencies in client order management logic, are relatively simple to implement and which provide the opportunity for substantive and enduring improvements. For further information or questions, please contact the Customer Service Technical Assistance Center.

Clients who are unable to trade more than one futures contract per order should first check their order presets to ensure that they have not established an order size limit in the precautionary settings.  If this is not the case,  then the restriction has likely been imposed by IB due to the client's failure to accept the Arbitration Agreement which automatically imposes a trading limit of one contract per order.  Clients decline to accept the agreement when presented through the application process but who subsequently wish to accept need to contact Customer Service to obtain and execute a physical copy of the agreement.

1. Total Quantity – defines the aggregate order size (e.g., shares, contracts);
2. Trade Increment – defines the unit (e.g., shares, contracts) size for each component order;
3. Time Increment – defines the period of time (seconds, minutes or hours) between the submission of a component order and the submission of the following order;
4. Order Type – may select from market, limit or relative. A market order will be executed at the ask price and should only be used where, for example, a stock is highly liquid with significant bid-ask sizes. Limit and Relative order types require that the trader specify additional order relationships and the choices are numerous. The execution price, for example, may be specified as being relative to a fixed value, bid, ask or last price, VWAP, moving average or last trade. These choices may be increased or decreased by an offset factor and multiple conditions may be established. For example, one may wish to create a relative order type to match the bid price plus an offset factor of $0.01 and to ensure that they don’t lift the ask if the spread is $0.01, add a condition that the bid be no less that $0.02 beneath the ask price.
5. How to Operate – if the trader does not check the box titled “Wait for current order to fill before submitting next order” then orders which do not meet the price conditions will continue to accumulate in accordance with the established time increment, the unexecuted orders will be aggregated into one or more potentially sizable orders at the exchange. If this box is checked, then the more restrictive the buying conditions, the greater the likelihood that the algorithm will fall behind its schedule of buying or selling at every ‘X’ interval.  If this box is checked the trader may then check the box titled “Catch up in time”. When that box has been checked and should the algorithm fall behind, the next orders will be placed immediately after their predecessor fills until such time the algorithm has caught up.
6. Randomization – check boxes are provided to allow for a +/- 20% randomization in the time increment and a +/- 55% randomization in the trade increment. Accordingly, in the case of a 30 second time increment, this would allow for randomization of between 24 and 36 seconds between orders and in the case of a 500 share trade increment, this would allow for randomization of between 200 and 800 shares (rounded to the nearest round lot) per order. Randomization serves to minimize the likelihood of others detecting your order.
7. RTH – a check box is provided which will allow the order to be filled outside of regular trading hours.
8. Take up Offer Size – if a limit or relative order type is selected, the trader may input an order size which if bid (in the case of a sell order) or offered (in the case of a buy order) the trader would be willing to take in its entirety, up to the remaining portion of the total order quantity (satisfies the price conditions).

1. Price Range - traders may specify a price range outside of which they do not want to buy the stock;
2. News – the trader may stop the algorithm for some period of time if there is news on the stock, for example;
3. Position - traders may stop the algorithm based upon their position in the stock; For example, a trader running multiple algorithms one to buy the stock and another to sell in an attempt to trade the stock back and forth for a profit may decide to suspend one side if the position becomes substantially imbalanced;
4. Stock Path – a trader, for example, may wish to suspend the algorithm if a given moving average, say the 10-minute VWAP is not at least as high as another average, say the 50-day moving average. This feature enables you to set up algorithms to trade chart points even when you are not looking at the chart at that moment;
5. Stock Path for Multiple Symbols – this condition is similar to the last except that it calls for two symbols. Here you can put in any symbol and compare some data point regarding that symbol (e.g., 10-minute VWAP, etc.) to the same or a different data point regarding the second symbol. These comparative conditions can apply to different symbols or to the same symbol.   For example, you could specify that you want to buy a certain stock only if it has been in a continuous uptrend. So in addition to the 10-minute VWAP being higher than the 50-day moving average, you would also like the 10-day moving average to be higher than the 30-day moving average on this stock.

1. Products – any product offered by IB (stocks, options, ETFs, bonds, futures, Forex) other than mutual funds;
2. Order Type – market, limit or relative.

IMPORTANT NOTE

This algo will only operate when the trader is logged into the TWS.  If the trader has been logged out prior to the algo completing (either by user action or by the automated nightly restart), a message will appear upon the next log in which will allow for re-activation of the algo.