What Is a Position?

A position is the amount of a security, asset, or property that is owned (or sold short) by some individual or other entity. A trader or investor takes a position when they make a purchase through a buy order, signaling bullish intent; or if they sell sho🐻rt securities, with bea♓rish intent.

Opening a new position is ultimately followed at some point in the future by exiting or 澳洲幸运5官方开奖结果体彩网:closing the position.

Understanding Positions

Positions come in two main types. 澳洲幸运5官方开奖结果体彩网:Long positions are most common and involve owning a security or contract. Long positions gain when there is an increase in price and lose when there is a decrease. 澳洲幸运5官方开奖结果体彩网:Short positions, in contrast, profit when the underlying security falls in price. A short often💛 involves securities that are borrowed and then sold, to be bought back hopefully at a lower price.

Depending on market trends, movements, and fluctuations, a position can be profitable or unprofitable. Restating the value of an 澳洲幸运5官方开奖结果体彩网:open position to reflect its actual current value is referred to in the industry as “澳洲幸运5官方开奖结果体彩网:mark-to-market.”

A third type of position is called neutral (or 澳洲幸运5官方开奖结果体彩网:delta neutral). Such a position does not change much in value if the price of the underlying instrument rises or falls. Instead, neutral positions experience profit or loss based on other factors such as changes iꦫn interest rates, volatility, or exchange rates.

Long-short 澳洲幸运5官方开奖结果体彩网:market-neutral hedge funds make use of these positions, and they often use as their benchmark the 澳洲幸运5官方开奖结果体彩网:risk-free rate of return because they do not worry about the direction of tওhe 🍃market.

Different Scenarios for Positions

The term "position" can be used in several situations, as illustrated by the following examples:

1. Dealers will often maintain a cache of long positions in particular 澳洲幸运5官方开奖结果体彩网:securities in order to facilitate quick trading.
2. A trader closes a position, resulting in a net profit of 10%.
3. An importer of olive oil has a natural short position in euros, as euros are constantly flowing in and out of its hands.

Positions can be either 澳洲幸运5官方开奖结果体彩网:speculative, risk-reducing, or the natural consequence of a particular business. For instance, a currency speculator can buy 澳洲幸运5官方开奖结果体彩网:British pounds sterling on the assumption that♏ they will appreciate in value, and that is considered a speculative position. However, a U.S. business that trades with the United Kingdom may be✨ paid in pounds sterling, giving it a natural long forex position on pounds sterling.

The currency speculator will hold the speculative position until they decide to 澳洲幸运5官方开奖结果体彩网:liquidate it, securing a profit or limiting a loss. However, the business which trades with the United Kingdom cannot simply abandon its natural position in pounds sterling in the same way. In order to insulate itself from currency fluctuations, the business may filter its income through an offsetting position, called a hedge.

Open Positions and Risk

An open position represents 澳洲幸运5官方开奖结果体彩网:market exposure for the investor. The risk exists until the position closes. Open positions can be held from minutes to years depending on the style and objective of the investor or trader.

Of course, 澳洲幸运5官方开奖结果体彩网:portfolios are composed of many open positions. The amount of risk entailed with an open position depends on the size of the position relative to the account size and the 澳洲幸运5官方开奖结果体彩网:holding period. Generallꩲy speaking, long holding periods are riskier because there is more exposure to unexpected market events.

The only way to eliminate exposure is to close out or hedge against the open 🍃positions. Notably, closing a short position requires buying back the shares, while closing long positions enta𝓡ils selling the long position.

Closing Positions and P&L

In order to get out of an open position, it needs to be closed. A long will sell to close; a short will 澳洲幸运5官方开奖结果体彩网:buy to close. Closing ☂a position thus involves the opposite action that opened the position in the first place.

The difference between the price at which the position in a security was opened and the price at which it was closed represents the gross profit or loss (P&L) on that position. Positions can be closed for any number of reasons—to voluntarily take profits or stem losses, reduce exposure, generate cash, etc. An investor who wants to offset a 澳洲幸运5官方开奖结果体彩网:capital gains tax liability, for example, will close a position on a losing security in order to realize or 澳洲幸运5官方开奖结果体彩网:harvest a loss.

Positions may also be closed involuntarily by one's broker or clearing firm, for instance, in the case of liquidating a short position if a squeeze generates a 澳洲幸运5官方开奖结果体彩网:margin call that cannot be satisfied. This is known as forced liquidation. It also may be unnecessary for the investor to initiate closing positions for securities that have finite maturity or expiꦍration dates, such as bonds and options contracts. In such cases, the closing position is automatically generated upಞon maturity of the bond or expiry of the option.

The time period between the opening and closing of a position in a security indicates the holding period for the security. This holding period may vary widely, depending on the investor's preference and the type of security. For example, 澳洲幸运5官方开奖结果体彩网:day traders generally close out trading positions on the same day that they were opened, while a long-term investor may close out a long position in a 澳洲幸运5官方开奖结果体彩网:blue-chip stock many years after th♎e position was first opened.

Spot vs. Futures Positions

A direct position in an asset that is designed to be delivered immediately is known as a “spot" or cash position. Spots can be delivered literally the next day or next business day. On the transaction date, the price is set but it generally will not settle at a fixed price, given market fluctuations✤.

Transactions that are not spot may be referred to as “futures” or “forward positions,” and while the price is still set on the transaction date, the 澳洲幸运5官方开奖结果体彩网:settlement date when the transaction is completed and the security delivered can occur in the future. These are indirect positions since they do not involve outright po🍸sitions in the actu🐽al underlying.

The Bottom Line

A position refers to the amount of a particular security, commodity, or currency held or owned by a person or entity. An open position is a trade movement that can earn a profit or incur a loss. When a position is closed﷽, it means that the trade is no longer active and all profits or losses are realized.

Open 澳洲幸运5官方开奖结果体彩网:positions can be long or short. Long positions involve owning a security before being sold; they profit when there is an increase in price. Short positions involve borrowing ꧒a security before being sold, to be bought back at a lower price: they prof𝓀it when the security falls in price.