Position

What is a 'Position'

A position is the amount of a security, commodity or currency that is owned (a long position) or borrowed and then sold (a short position) by an individual, institution or dealer. A position can be profitable or unprofitable, depending on market movements. The practice of restating the value of a position based on its current value is called mark-to-market.

BREAKING DOWN 'Position'

Examples of how the term is often used include:

1. Dealers often take long positions in specific securities to maintain inventories and allow for quick and easy trading.

2. The trader closes his position and locks in a profit of 10%.

3. The olive oil importer has a natural short position in euros.

Reasons for Positions

A position can be speculative or part of a broader business. For example, an investor can buy euros, which is a long position, because he believes the euro will appreciate in value. This is a speculative position. A business might have a natural long position in euros because it exports to Europe and gets paid in euros. The investor who purchased euros will leave that position open until he thinks it is time to close it out to take a profit or limit a loss. The business with the natural long position may enter into an offsetting position, known as a hedge, to protect against market moves before eventually closing it out.

Spot vs. Futures Positions

A position that is for immediate delivery is referred to as "spot." Immediate delivery can be same day, next business day or two business days depending on the security involved. The price of the position is established on the transaction date, even though it may not settle for several days after that. Any transaction longer than spot is considered a forward or future transaction. The price of the security is still set on the transaction date, but the settlement date could be weeks or months in the future.

Options

A position can also be taken by buying or selling options. A call option is the right, but not the obligation, to buy a security or currency at a stipulated price over a given period of time. A put is the right to sell the security. An investor can take a position in the underlying security or currency by buying or selling the put or call. The option can be sold or allowed to expired, or the right to buy or sell can be exercised.

Book Value vs. Mark-to-Market

If the value of a position is restated regularly based on the current price of the security or currency, this is referred to as mark-to-market (MTM). This results in paper gains and losses as the market value changes. Securities that have been bought on margin are subject to margin calls based on the MTM. If there is no MTM, the security is held at its book value, which is the price of the original transaction.

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