In the world of investments, you are likely to come across the term ‘open positions’. For that matter, you will no doubt be acquainted with the term ‘position’ by itself. When making an investment, it’s important that you understand what these terms mean and how they work in the context of trading. Their prevalence in finances means that knowing about them ahead of time is more than ideal; it is essential.
In this article, we will explore open positions and the difference between long positions and short positions. In addition, we look into how one can apply open positions to the HedgeTrade platform.
What are they?
Let’s start at the beginning by defining what a ‘position’ is. In finance, it is the total amount of a security, commodity, or currency that a person or entity holds or owns. In the case of financial trading, a position in a futures contract is not a reflection of ownership. Instead, it serves a binding commitment to buy or sell a specific number of financial instruments. These include such things as securities, currencies or commodities. The buying or selling of these instruments are typically for a given price.
Now we can start expanding on what an ‘open position’ is. In terms of investing, it’s any established or entered trade that still needs to close with an opposing trade. The existence of an open position occurs after a buy or a sell. Alternatively, following a long position or a short position. In any case, the position will remain up until an opposing trade takes place.
An open position acts as a form of representation for the investor that primarily covers market exposure. The risk continues to persist until the position finally comes to a close. It’s possible to hold open positions from minutes to even years. It largely depends on the style, as well as the objective, of the investor or trader.
As one might expect, portfolios consist largely of a wide variety of open positions. The amount of risk that comes with open position banks on the overall size of the position relative to the account size. Moreover, the length of the holding period. On the whole, long holding periods are comparatively much more of a risky undertaking. The reason for this being that there is more exposure to sudden market events.
There really is one way to completely eliminate exposure. That one method is to simply close out the open positions. Most noteworthy is closing a short position requires buying back the shares. Closing long positions, on the other hand, entails selling the long position.
Long vs. Short
In the trading of assets, there are two types of positions that an investor can take. One is a long position and the other is a short position. An investor has a choice between buying an asset (i.e. going long) or selling it (i.e. going short).
A long position – also referred to as ‘long’ – is the purchase of a stock, commodity, or currency. However, it is done so with the belief that the value of that stock, commodity, or currency will rise. Holding a long position is what is commonly seen as a bullish view. A long position is, obviously, the opposite of a short position (aka. short). The typical usage of a long position and long are in the context of buying an options contract. The trader is able to hold either a long call or a long put option. In the end, it would depend on the outlook for the options contract’s underlying asset.
The creation of a short position is when a trader sells a security first with the intention of repurchasing it. Alternatively, they intend on covering it at a later date at a considerably lower price. A trader will sometimes make the decision to short a security when they expect the security’s price to soon drop.
There are two distinct types of short positions: ‘naked’ and covered. A naked short is when a trader sells a security and all without actually having possession of it. It is important to note that this practice is illegal in the U.S. for equities. A covered short, meanwhile, is when a trader borrows the shares from a stock loan department. The trader, in return, will pay a borrow-rate during the period in which the short position is in place.
‘Day trading’ is the purchase and sale of a security that occurs within the span of a single trading day. It will typically take place in just about any marketplace. However, these trades are most common in the foreign exchange (forex) and stock markets.
Generally speaking, those who partake in day traders have the proper knowledge and funds to prosper. They utilize high amounts of leverage and short-term trading strategies in their endeavors. With them, they are able to capitalize on the smallest of price movements in highly liquid stocks or currencies. The profit potential pertaining to day trading is arguably one of the most deliberate Wall Street topics.
Again, this practice is quite frequent in the forex and stock markets. In spite of this commonness, day trading is still incredibly risky and definitely not suitable for novices. A day trader will try to close all of their open positions before the day comes to an end. If they fail to, then they have to hold on to their risky position overnight or longer. During this time, the market could potentially turn against them.
More often than not, day traders are disciplined experts in that they formulate a plan and stick to it. In addition, day traders usually have a surplus of money at their disposal to gamble on day trading. The smaller the price movements are, the more money there needs to be in order to capitalize on those movements.
How do they work on HedgeTrade?
Now, how exactly would one apply open positions to HedgeTrade? Well, for starters, we need to establish that this is not in the context of a trade. Rather, it focuses more on the data to support the decision-making process when opening and closing positions.
HedgeTrade prides itself on being the ideal platform for novices and experts alike. Both parties have a mutually beneficial relationship on this platform. The beginners can learn from the experts, copy their strategies, and purchase Blueprints. The experts, meanwhile, can pass down their knowledge to the newcomers and can turn a profit from the purchases of their Blueprints.
The way in which you can use HedgeTrade in open positions is to get valuable information about them. In other words, how long you should keep them open. For instance, whenever a Blueprint expires, that will likely be the time for the trader who purchased a Blueprint to stop their stop loss. Alternatively, it is the time for them to generate a profit on an exchange.
So, this is another way that they can utilize the information from the experts. They can use it as a means to help them decide exactly how long they should keep a trade open. Likewise, when they should close it. This, in turn, will correspond to the entry and exit price.
Participants can track active trade predictions by following when they begin and when they close. Moreover, they can close their predictions when the one they are following closes as well.