An open position refers to any established or entered trade that has yet to be closed with an opposite trade.
An open position can exist following a buy (long) or a sell (short) order.
- Long Position: If you’ve bought a security with the expectation that the asset will rise in value, you have an “open long position” in that security. The position remains open until you sell the security, at which point it is closed.
- Short Position: If you’ve sold a security that you do not own (a common practice in short selling), with the expectation that the asset will drop in value, you have an “open short position”. The position remains open until you buy the security back (also known as covering), closing the position.
While a position is open, a trader’s equity will fluctuate with the market value of the position.
Any profit or loss is unrealized while the position is open; profits or losses become realized when the position is closed.
It’s important to note that open positions carry risk – the longer you keep a position open, the higher the chance that the market may move against your position, potentially causing a loss.
However, many trading strategies involve keeping positions open for a certain period to capture gains, depending on the trader’s risk tolerance and market outlook.