Open Position
Candlefocus EditorOpen positions can exist in many different markets, such as stocks, foreign exchange, options and futures, and commodities. Typically, when an investor buys an asset with the expectation of making a profit when it increases in value, they have an open long position. On the other hand, if they sell a long position, they can be said to have an open short position if they expect to make a profit form the falling value of the asset.
Day traders often use open positions to make quick profits which can then be locked in by the end of the day in order to minimise exposure to the markets. However, some investors prefer to keep their open positions open for months or even years, taking full exposure to market movements. For example, a trader who buys shares in a company and fails to sell it may remain exposed to the stock movements in the market, and will be either rewarded by any increase in price or penalised by any fall in price.
Overall, an open position should never be entered into lightly and instead must be carefully considered depending on the traders risk appetite and the time horizon for the particular security. This exposure could result in substantial losses if the traders incorrectly predicts the direction of the asset, or if the markets move unexpectedly. Therefore, understanding the concept of open position and the associated risks is essential for any investor looking to take advantage of the financial markets.