Position is the amount of cash, securities, commodities and to wider extent all financial instruments held and/or owned by a physical person or legal entity.
In financial trading, a position is a binding commitment to buy or sell a given amount of financial instruments, such as securities, currencies or commodities, for a given price.
Trading and financial assets
In derivatives trading or for financial instruments, the concept of a position is used extensively. There are two basic types of position: a long and a short.
Traded options will be used in the following explanations. The same principle applies for futures and other securities. For simplicity, only one contract is being traded in these examples.
Long position
- When a trader buys an option contract that he is not short, he is said to be opening a long position.
- When a trader sells an option contract that he is already long, he is said to be closing a long position.
- When a trader is 'long', he/she wins when the price increases, and loses when the price decreases
Short position
- When a trader sells an option contract that he is not long, he is said to be opening a short position.
- When a trader buys an option contract that he is already short, he is said to be closing a short position.
- When a trader is 'short', he/she wins when the price decreases, and loses when the price increases.
Net position
Net position is the difference between total open long (receivable) and open short (payable) positions in a given asset (security, foreign exchange currency, commodity, etc.) held by an individual. This also refers to the amount of assets held by a person, firm, or financial institution, as well as the ownership status of a person's or institution's investments.
References
See also
- Arbitrage
- Long (finance)
- Short (finance)
