Close Position

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Dictionary Says

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 Says

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 Definitions

  • Short Squeeze

    A situation in which a lack of supply and an excess demand for a traded stock forces the price upward.
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  • Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value.2. In the context of options, the buying of an options ...
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  • Short (or Short Position)

    1. The sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value.2. In the context of options, it is the sale (also known as "writing") of ...
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    • Buy-In

      When an investor is forced to repurchase shares because the seller did not deliver the securities in a timely fashion, or did not deliver them at all.
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    • Margin Call

      A broker's demand on an investor using margin to deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin. Margin calls occur ...
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