Distinguish between ‘Gross Position’ and ‘Net Position’ Limits.
Gross position limit is the maximum total notional value of all long and short positions a market maker holds in a specific asset, without netting them out. Net position limit is the maximum absolute value of the difference between the total long and total short positions (the inventory exposure) in a specific asset.
Net limits manage directional risk, while gross limits manage overall exposure and operational capacity.
Glossar
Long and Short Positions
Exposure ⎊ A long position in cryptocurrency, options, or derivatives signifies an expectation of price appreciation, establishing a positive exposure to the underlying asset; this strategy profits from upward market movements, with potential gains theoretically unlimited, though constrained by market liquidity and exchange limitations.
Total Notional Value
Valuation ⎊ Total Notional Value, within cryptocurrency derivatives, represents the calculated value of an underlying asset based on the size of open positions, irrespective of market direction.
Net Position
Position ⎊ This represents the net aggregate exposure, calculated in terms of notional value or underlying asset quantity, resulting from all open long and short derivative contracts held by a trading entity.