Close Position

AAA

DEFINITION of 'Close Position'

Executing a security transaction that is the exact opposite of an open position, thereby nullifying it and eliminating the initial exposure. Closing a long position in a security would entail selling it, while closing a short position in a security would involve buying it back. The difference between the price at which the position in a security was opened, or initiated, and the price at which it was closed, represents the gross profit or loss on that security position. Taking offsetting positions in swaps is also very common to eliminate exposure prior to maturity.


Also known as "position squaring."


INVESTOPEDIA EXPLAINS 'Close Position'

Positions can be closed for any number of reasons - in order to take profits or stem losses, reduce exposure, generate cash, etc.


The time period between the opening and closing of a position in a security indicates the holding period for the security. This holding period may vary widely, depending on the investor's preference and the type of security. For example, day traders generally close out trading positions on the same day that they were opened, while a long-term investor may close out a long position in a blue-chip stock many years after the position was first opened.


It may not be necessary for the investor to initiate closing positions for securities that have finite maturity or expiry dates, such as bonds and options. In such cases, the closing position is automatically generated upon maturity of the bond or expiry of the option.


While most closing positions are undertaken at the discretion of investors, positions are sometimes closed involuntarily or by force. For example, a long position in a stock held in a margin account may be closed out by a brokerage firm if the stock declines steeply, and the investor is unable to put in the additional margin required. Likewise, a short position may be subject to a "buy-in" in the event of a short squeeze.

RELATED TERMS
  1. Short Squeeze

    A situation in which a heavily shorted stock or commodity moves ...
  2. Buy-In

    When an investor is forced to repurchase shares because the seller ...
  3. Short (or Short Position)

    1. The sale of a borrowed security, commodity or currency with ...
  4. Margin Call

    A broker's demand on an investor using margin to deposit additional ...
  5. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  6. Dividend

    A distribution of a portion of a company's earnings, decided ...
RELATED FAQS
  1. What role do shareholders play in a capital budget?

    Shareholders play an important role in a capital budget because they're the source of equity capital. In corporate finance, ... Read Full Answer >>
  2. Why does the efficient market hypothesis state that technical analysis is bunk?

    The efficient market hypothesis (EMH) suggests that markets are informationally efficient. This means that historical prices ... Read Full Answer >>
  3. How does the risk of investing in the electronics sector compare to the broader market?

    The risk of investing in the electronics sector closely approximates the risk of investing in the broader market. The electronics ... Read Full Answer >>
  4. How do markets account for systematic risk?

    Systematic risks provide markets with an unpleasant quandary. Economists, policy makers, directors, fund managers and investors ... Read Full Answer >>
  5. How are swap agreements financed?

    Since swap agreements involve the exchange of future cash flows and are initially set at zero, there is no real financing ... Read Full Answer >>
  6. What stage of the economic cycle is usually the best for an investor to enter the ...

    The best time during the economic cycle for an investor to enter the electronics sector is when he has confidently identified ... Read Full Answer >>
Related Articles
  1. Options & Futures

    Going Long On Calls

    Learn how to buy calls and then sell or exercise them to earn a profit.
  2. Trading Strategies

    Momentum Indicates Stock Price Strength

    Momentum can be used with other tools to be an effective buy/sell indicator.
  3. Trading Strategies

    Find Turning Points With Single-Day Patterns

    On their own, single-day patterns can be unreliable, but that doesn't mean they can't be used effectively.
  4. Trading Strategies

    10 Tips For The Successful Long-Term Investor

    These guiding principles will help you avoid common folly during the decision-making process.
  5. Forex Education

    Forex Tutorial: The Forex Market

    In this online tutorial, beginners and experts alike can learn the ins and outs of the retail forex market.
  6. Investing Basics

    What is a "Coupon"?

    In the financial world, “coupon” represents the interest rate on a bond.
  7. Investing Basics

    What is a Cyclical Stock?

    A cyclical stock is an equity security whose price is affected by ups and downs in the overall economy.
  8. Chart Advisor

    Expect Breakouts in These Stocks Soon

    Watch these stocks this week for a breakout. There are long and short candidates, based on different chart patterns.
  9. Chart Advisor

    Watch These Stocks for a Breakout

    These stocks are are tight and will eventually breakout out. Here ways to trade them.
  10. Investing Basics

    What's the Primary Market?

    The primary markets are where investors can get first crack at a new security issuance.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center