DEFINITION of 'Unwind'

To close out a position that has offsetting investments or the correction of an error. Unwinds occur when, for example, a broker mistakenly sells part of a position when an investor wanted to add to it. The broker would have to unwind the transaction by selling the erroneously purchased stock and buying the proper stock. Generally, the term "unwind" refers to more complicated and layered trades.


One type of investing that features unwind trading is arbitrage investing. If, for the sake of illustration, an investor takes a long position in stocks, while at the same time selling puts on the same issue, he or she will need to unwind those trades at some point. Of course, this entails covering the options and selling the underlying stock. A similar process would be followed by a broker attempting to correct a buying/selling error.

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