Position (finance)

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In finance, a position is the amount of a particular security, commodity or currency held or owned by a person or entity.[1]

In financial trading, a position in a futures contract does not reflect ownership but rather a binding commitment to buy or sell a given number of financial instruments, such as securities, currencies or commodities, for a given price.[2]

Trading and financial assets[edit]

In derivatives trading or for financial instruments, the concept of a position is used extensively. There are two basic types of position: a long and a short. Generally speaking, long positions stand to gain from a rise of the price of the instrument and short positions from a fall (but with options the situation is more complicated).

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[edit]

  • When a trader buys an option contract that he is not short, he is said to be opening a long position.
  • When a trader sells an option contract that he is already long, he is said to be closing a long position.

Short position[edit]

  • When a trader sells an option contract that he is not long, he is said to be opening a short position.
  • When a trader buys an option contract that he is already short, he is said to be closing a short position.

Net position[edit]

Net position is the difference between total open long (receivable) and open short (payable) positions in a given asset (security, foreign exchange currency, commodity, etc.) held by an individual. This also refers to 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[edit]

References[edit]

  1. ^ "Position". Investopedia. Retrieved 2018-03-12.
  2. ^ Harvey, Campbell R. (2011). "Position". Financial Glossary. Nasdaq.