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 dividend yield is typical for companies in the industrial sector?

    The average dividend yield of the industrial goods sector is approximately 1.71%. The industrial goods sector is a group ... Read Full Answer >>
  2. Which REITs pay the highest dividends?

    A real estate investment trust (REIT) is a financial security that trades like a stock on major market exchanges. However, ... Read Full Answer >>
  3. What is the difference between an Equity REIT and a Mortgage REIT?

    There are several types of real estate investments trusts (REITS) that investors can purchase, including equity REITS and ... Read Full Answer >>
  4. How does a lack of demand affect financial markets?

    A lack of demand affects financial markets by leading to lower prices. The function of financial markets is to constantly ... Read Full Answer >>
  5. What kinds of derivatives are types of forward commitments?

    A derivative is a type of security in which the price of the security is dependent on underlying assets. A derivative could ... Read Full Answer >>
  6. What does it mean to be long or short a derivative?

    A derivative is a type of security in which the price of the security is dependent on one or more underlying assets. A derivative ... 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. Charts & Patterns

    The 6 Most Profitable Grocery Stores

    These are the six largest grocery store chains operating in the United States.
  7. Technical Indicators

    6 Stocks for Millennials (or Anyone)

    Savvy Millennial investors looking for long-term winners should take a look at these stocks.
  8. Personal Finance

    Top Healthcare, Medical Equipment Stocks of 2015

    A short list of the top healthcare and medical equipment stocks of 2015.
  9. Investing Basics

    Understanding Open-End Funds

    An open-end fund is a type of mutual fund that does not limit the amount of shares it issues, but issues as many shares as investors are willing to buy.
  10. Investing Basics

    What is a Nominal Value?

    The nominal value of a security, such as a stock or bond, remains fixed for the duration of its life.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center