Position

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 on the other hand on the off chance that they sell short securities with bearish intent.

Opening another position is eventually followed sooner or later by leaving or closing the position.

Grasping Positions

Positions come in two fundamental types. Long positions are generally common and include possessing a security or contract. Long positions gain when there is an increase in price and lose when there is a decline. Short positions, conversely, profit when the underlying security falls in price. A short frequently includes securities that are borrowed and afterward sold, to be bought back ideally at a lower price.

Contingent upon market trends, developments and changes, a position can be profitable or unprofitable. Repeating the value of a [open position](/vacant position) to mirror its genuine current value is alluded to in the industry as "mark-to-market."

A third type of position is called neutral (or delta neutral). Such a position doesn't change a lot of in value in the event that the price of the underlying instrument rises or falls. All things being equal, neutral positions experience profit or loss in light of different factors, for example, changes in interest rates, volatility, or exchange rates.

Long-short market-neutral hedge funds utilize these positions, and frequently use as their benchmark the risk-free rate of return since they don't worry about the direction of the market.

Special Considerations

The term position can be utilized in several circumstances, as illustrated by the accompanying models:

1. Dealers will frequently keep a reserve of long positions specifically securities to work with quick trading.
2. A trader closes a position, bringing about a net profit of 10%.
3. A importer of olive oil has a natural short position in euros, as euros are continually flowing all through its hands.

Positions can be either speculative, risk-lessening, or the natural outcome of a specific business. For example, a currency speculator can buy British pounds sterling on the assumption that they will see the value in value, and that is viewed as a speculative position. Be that as it may, a U.S. business that trades with the United Kingdom might 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 choose to liquidate it, getting a profit or restricting a loss. Be that as it may, the business which trades with the United Kingdom can't just abandon its natural position on pounds sterling similarly. To protect itself from currency vacillations, the business might filter its income through an offsetting position, called a hedge.

Open Positions and Risk

A vacant position addresses market exposure for the investor. The risk exists until the position closes. Open positions can be held from minutes to years relying upon the style and objective of the investor or trader.

Of course, portfolios are made out of many open positions. The amount of risk involved with a vacant position relies upon the size of the position relative to the account size and the holding period. Generally talking, long holding periods are riskier in light of the fact that there is more exposure to startling market occasions.

The best way to kill exposure is to close out or hedge against the open positions. Quite, closing a short position requires buying back the shares, while closing long positions involves selling the long position.

Note that while utilizing options contracts, you can take a long position in a put, yet which gives you short exposure to the underlying security.

Closing Positions and P&L

To escape a vacant position, it should be closed. A long will sell to close; a short will buy to close. Closing a position hence includes the contrary action that opened the position in any case.

The difference between the price at which the position in a security was opened and the price at which it was closed addresses the net profit or loss (P&L) on that position. Positions can be closed for quite a few reasons — to intentionally take profits or stem losses, reduce exposure, generate cash, and so on. An investor who needs to offset a capital gains tax liability, for instance, will close a position on a losing security to understand or harvest a loss.

Positions may likewise be closed automatically by one's broker or clearing firm; for example, on account of liquidating a short position if a squeeze generates a margin call that can't be fulfilled. This is known as a forced liquidation. It additionally might be superfluous for the investor to start closing positions for securities that have finite maturity or expiration dates, for example, bonds and options contracts. In such cases, the closing position is automatically endless supply of the bond or expiry of the option.

The time span between the opening and closing of a position in a security demonstrates the holding period for the security. This holding period might shift widely, contingent upon the investor's preference and the type of security. For instance, day traders generally close out trading positions around the same time that they were opened, while a long-term investor might close out a long position in a blue-chip stock numerous years after the position was first opened.

Spot versus Futures Positions

A direct position in an asset that is intended to be delivered promptly is known as a "spot" or cash position. Spots can be delivered in a real sense the next day, the next business day, or some of the time following two business days in the event that the security being referred to calls for it. On the transaction date, the price is set yet it generally won't settle at a fixed price, given market vacillations.

Transactions that are not spot might be alluded to as "futures" or "forward positions," and keeping in mind that the price is as yet set on the transaction date, the settlement date when the transaction is completed and the security delivered can happen from here on out. These are indirect positions since they don't include outright positions in the real underlying.

Features

• Positions might be closed deliberately or automatically — as on account of a forced liquidation or a bond that has arrived at maturity.
• Open positions can be either long, short, or neutral in response to the direction of its price.
• Positions can be closed for either a profit or loss by taking the contrary position; for example, selling shares that were purchased to open a long position.
• A position is laid out when a trader or investor executes a trade that doesn't offset an existing position.