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What Is the Impact of Exceeding a Position Limit on a Market Maker’s Trading Activity?

Exceeding a position limit triggers immediate risk management actions. The market maker's automated systems will typically halt new trading activity in the affected asset or only allow trades that reduce the position (liquidation).

This forced unwinding can be costly, especially in illiquid markets, potentially causing significant losses and market impact.

What Is the Role of ‘Position Limits’ in a Market Maker’s Risk Management Framework?
Define ‘Price Impact’ in the Context of an Illiquid Asset Trade
What Mechanisms Other than a CLOB Are Used to Ensure Fair Pricing in Illiquid Markets?
How Is the Liquidation Price of a Leveraged Position Calculated?