Close Position

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."


BREAKING DOWN '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. Short (or Short Position)

    A short position is the sale of a borrowed security, commodity ...
  3. Buy-In

    When an investor is forced to repurchase shares because the seller ...
  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. Value Investing

    The strategy of selecting stocks that trade for less than their ...
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. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  7. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  8. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  9. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  10. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
RELATED FAQS
  1. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
  4. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
  5. How does the stock market react to changes in the Federal Funds Rate?

    The stock market reacts to changes in the federal funds rate in various ways depending on where it is in the business cycle. ... Read Full Answer >>
  6. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
Hot Definitions
  1. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  2. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  3. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  4. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
  5. Godfather Offer

    An irrefutable takeover offer made to a target company by an acquiring company. Typically, the acquisition price's premium ...
Trading Center