What Is a Close Position?

Closing a position refers to executing a security transaction that is the exact opposite of an open position, thereby nullifying it and eliminating the initial exposure. Closing a long position in a security would🐲 entail selling it, while closing a short position in a security would involve buying it back. Taki🌱ng offsetting positions in swaps is also very common to eliminate exposure prior to maturity.

Closing a position is also known as "position squaring."

Understanding Close Positions

When trades and investors transact in the market, they are opening and closing positions. The initial position that an investor takes on a security is an open position, and this could be either taking a 澳洲幸运5官方开奖结果体彩网:long position or 澳洲幸运5官方开奖结果体彩网:short position on the asset. In order to get out of the position, it needs to be closed. A long will 澳洲幸运5官方开奖结果体彩网: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. An investor who purchased Microsoft (MSFT) shares, for example, holds those securi꧒ties in his account. When he sells the shares, he closes the long position on MSFT.

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

The time period between the opening and closing of a position in a security indicates the 澳洲幸运5官方开奖结果体彩网: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 the position was first opened.

It may not be necessary for the investor to initiate closing positions for securities that have finiteᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚ maturity or expiry dates, such as bonds and options. In such cases, the closing position is automatically generated upon maturity of the🐟 bond or expiry of the option.

Special Considerations

While most closing positions are undertaken at the discretion of investors, positions are sometimes closed involuntarily or by force. For example, a long position in a stock held in a 澳洲幸运5官方开奖结果体彩网:margin account may be closed out by a brokerage firm if the stock declines steeply, and the investor is unable to put in the additional 澳洲幸运5官方开奖结果体彩网:margin required. Likewise, a short position may be subject to a buy-in in the event of a 澳洲幸运5官方开奖结果体彩网:short squeeze.

A close position might be partial or full. If the security is illiquid, the investor may not be able to close all his positions at once at the 澳洲幸运5官方开奖结果体彩网:limit price specified. Also, an investor may purposely close only a portion of his position. For example, a crypto trader that has an open position on three XBT (token for Bitcoin), may close his position on only one token. To do this, he will enter a se𓂃ll order for one XBT, leav💙ing him with two open positions on the cryptocurrency.

Example of a Closed Position

Suppose an investor has taken a long position on stock ABC and is expecting its price to increase 1.5 tiꦓmes from the date of his investment. The investor will close out his investment, after the price reaches the desired level, by selling the stock.