DEFINITION of 'Opening Transaction'

The act of initiating a trade. An opening transaction is the initial step in a trading activity that involves the purchase or sale of a financial instrument or other asset. It generally - but not always - involves a closing transaction at a later point in time, which may be on the same day for an intra-day trade or days, weeks or months later for a longer-term trade. The term is most frequently used with reference to options trades.

BREAKING DOWN 'Opening Transaction'

An opening transaction would involve the purchase of a security when initiating a long position and the sale of a security when initiating a short sale or short position.

The difference between the prices for the opening and closing transactions represents the gross profit or loss for the trader or investor. For example, if an opening transaction involves the (short) sale of 1,000 shares of a stock that is trading at $10.00, and the closing transaction involves the purchase of 1,000 shares at $9.00, the gross profit on this trade would be $1,000.

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