What is the position in investment? When and how to close a position depends on a trader’s specific needs and strategy.
“position” or “open position” is a very common concept for investors in the financial market. However, not many participants understand the difference between position types and how to open or close a position properly.
What is the position?
A position is a short term for an open position, which is a trading position and the amount of an underlying asset or derivative that is still valid that an investor is holding at a particular time. This position still has a temporary profit and loss, continuously changing according to the market price. Only when the position is closed (closed the position) will the investor actually receive the actual profit or loss from this purchase or sale.
Types of positions
Positions are divided into two types, namely long position and short position.
Long position
Long positions are when a trader buys a portfolio of assets such as stocks, commodities or currencies with the expectation that the price of the asset will increase in the future, and can sell at a better price. to profit from the difference between the lower buying price and the higher selling price.
Investors and businesses can also buy a futures or forward contract or option to hedge against adverse price movements. Futures and forward contracts differ from options in that the buyer of the contract is obligated to buy or sell the underlying asset. An investor can buy a long call option when they expect the price of the underlying asset to increase in the future. They buy a long put option in anticipation of a fall in the price of the underlying asset.
Short position
The opposite of a buy position is a sell position (join/open a short position) when an investor has a need to sell the underlying asset or thinks that the price of the underlying asset or derivative will decrease in the future. The investor will place a sell order on the market, as soon as the order is filled, the investor has successfully opened and is holding a short position.
Distinguish between buy position and sell position
Difference between long and short positions:
A long position predicts an increase in the asset price, while a short position predicts a decrease in the asset price.
In a long position, the trader is the owner of the asset, while a short position means that the trader is selling an asset that a broker lends to you.
A short position is to sell an asset that the trader does not own yet
A long position means that the trader has bought and owns the underlying asset
How to open and close a position
When traders place an order in the market, they are opening and closing positions. The initial position an investor holds in an asset is an open position, which can be a long or short position on the asset.
In order to exit a position (close the position or close the position) the trader needs to close the position by executing an order corresponding to the position held. Use a sell order (SELL) to close a holding long position (LONG POSITION) and vice versa use a buy order (BUY) to close a holding short position (SHORT POSITION).
For example, an investor sells futures contracts (opens a short position) on the VN30 CP index if they expect the VN30 index to decrease. Investors do not need any contracts to sell (short). To close the position, the Investor must buy back the futures contract or hold it to maturity
When and how to close a position depends on a trader’s specific needs and strategy, usually one of the following:
There is no longer any need to participate in holding property and contracts
Need to take profit, stop loss?
Holding the number of positions exceeding the specified level
Inability to replenish the required margin
The trader can choose to close the position:
Before expiration, actively close the position at the appropriate price
Or at the time of contract maturity and payment
Use Buy and Sell trades in your trading strategy
Long positions are taken when traders expect the price to rise and when they expect the price to fall, they can short the underlying asset.
Meanwhile, short selling is a way to balance risk. It allows the trader to take an opposing position on an asset and helps increase the chances of making a net profit from the trades.
Conclude
Building a trading plan and gaining knowledge about what a position ishelps investors be proactive and better manage risk. From there, you can consider the possibilities, possible outcomes with the types of positions held, as well as the level of risk before you make your next trade.
