Close Position
What Does It Mean to Be in a Close Position?
Closing a position entails carrying out a security transaction that is the polar opposite of an open position, thus nullifying it and removing the initial risk. A long position in a securities would be closed by selling it, but a short position would be closed by purchasing it back. Taking offsetting positions in swaps to remove exposure before maturity is also fairly prevalent.
"Position squaring" is another term for closing a position.
TAKEAWAYS IMPORTANT
Closing a position is taking the opposite position in the market to cancel out an existing position.
In a short sale, this would imply purchasing the security back, but in a long position, it would mean selling it.
A closure transaction is usually started by a trader, but it can also be forced closed by brokerage firms in specific cases if certain requirements are satisfied.
Close Positions: An Overview
Positions are opened and closed when traders and investors engage in the market. An open position is the first position that an investor takes on a securities, and it can be either a long or short one on the asset. It must be closed in order to be able to exit the situation. A long position will sell to close, whereas a short position will purchase to close.
Closing a position entails the exact opposite of what was done to open it in the first place. For example, an investor who acquired Microsoft (MSFT) shares has those shares in his account. He ends his long position on MSFT when he sells the shares.
The gross profit or loss on a security position is the difference between the price at which the position was opened and the price at which it was closed. Positions can be ended for a variety of reasons, including taking gains or limiting losses, reducing exposure, generating cash, and so on. To realise or harvest a loss, an investor who wishes to offset his capital gains tax burden, for example, may terminate his investment on a losing security.
The holding period for a security is the time between the opening and closure of a position in the security. Depending on the investor's preferences and the type of investment, the holding duration might vary significantly. Day traders, for example, typically close out trading positions the same day they open them, but a long-term investor may close out a long position in a blue-chip company several years after it is initially established.
For assets with defined maturity or expiration dates, such as bonds and options, the investor may not need to commence closing positions. In such circumstances, the closing position is established automatically when the bond matures or the option expires.
Particular Points to Consider
While the majority of positions are cancelled at the request of investors, others are closed involuntarily or by force. For example, a brokerage company may cancel out a long position in a margin account if the stock falls sharply and the investor is unable to put up the additional margin necessary. In the case of a short squeeze, a short position may also be subject to a buy-in.
A partial or complete close posture is possible. If the investment is illiquid, the investor may be unable to liquidate all of his holdings at the stipulated limit price. In addition, an investor may close only a portion of his stake on purpose. For example, a cryptocurrency trader who has three XBT (Bitcoin tokens) open positions may only close one of them. He will do so by placing a sell order for one XBT, leaving him with two open positions in the cryptocurrency.
A Closed Position is an example of a closed position.
Assume an investor has acquired a long position in stock ABC and forecasts a 1.5-fold increase in its price from the time of his purchase. After the price reaches the targeted level, the investor will sell the shares to close out his investment.
