Position (finance)

Position (finance)
Finance
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For other uses, see Position (disambiguation).

In financial trading, a position is a binding commitment to buy or sell a given amount of financial instruments, such as securities, currencies or commodities, for a given price.

The term "position" is also used in the context of finance for the amount of securities or commodities held by a person, firm, or institution, and for the ownership status of a person's or institution's investments.

Contents

Trading and financial assets

In derivatives trading or for financial instruments, the concept of a position is used heavily. There are two basic types of position: a long and a short.

Traded options will be used in the following explanations. The same principle applies for futures and other securities. For simplicity, only one contract is being traded in these examples.

Long position

  • When a trader buys an option contract that he has not already written (i.e. sold), he is said to be opening a long position.
  • When a trader sells an option contract that he already owns, he is said to be closing a long position.
  • When a trader is 'long', he/she wins when the price increases, and loses when the price decreases.

Short position

  • When a trader writes (i.e. sells) an option contract that he does not already own, he is said to be opening a short position.
  • When a trader buys an option contract that he has written (i.e. sold), he is said to be closing a short position.
  • When a trader is 'short', he/she wins when the price decreases, and loses when the price increases.

The long and the short of it is that: buyers are referred to as the long; and sellers are referred to as the short.

Net position

Net position is the difference between total open long (receivable) and open short (payable) positions in a given assets (security, foreign exchange currency, commodity, etc...) held by an individual. This also refers the amount of assets held by a person, firm, or financial institution as well as the ownership status of a person's or institution's investments.

See also

v · d · eStock market
Types of stocks
Participants
Exchanges
Stock valuation
Financial ratios
Cap rate · D/E ratio · Dividend cover · Dividend payout ratio · EV/EBITDA · EV/GCI · EV/Sales · CROCI · P/B ratio · P/CF ratio · P/E · PEG · P/S ratio · RAROC · ROA · ROCE · ROE · ROTE · ROIC · SGR · Sharpe ratio · Treynor ratio
Trading theories
and strategies
Related terms

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