Open positions definition
What is an open position?
An open position is a trade which is still able to generate a profit or incur a loss. When a position is closed, all profits and losses are realised, and the trade is no longer active. Open positions can be either long or short – enabling you to profit from markets rising as well as falling.
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Example of an open position
Let’s suppose that you want to go long on shares in company X and decide to place a CFD trade. Once you have decided the parameters of your trade – and done the necessary technical analysis and fundamental analysis – you would enter the market. At this point, your position would be considered ‘open’.
To close an open position, you would usually need to reverse the trade that you placed to open it (selling any assets that have been bought, or vice versa). In some cases, an open position would be closed automatically if it reached its expiry date. This would happen with a futures contract for example.
An open position would also be closed automatically if it had a stop or a limit attached which was subsequently filled.
Pros and cons of an open position
Pros of an open position
An open position offers the opportunity for a trader to realise a profit. Without having an open position in a market, a trader would have no exposure and so couldn’t expect to receive any returns.
Leverage can be a great way for a trader to maximise profit on their open positions by gaining full market exposure for a small initial deposit. However, while trading on leverage can increase profits, it can also amplify losses.
Cons of an open position
With financial exposure, comes risk of losing money. As a result, it is important for a trader to create a risk management strategy. This could include learning about the risks of leveraged trading or how to hedge an open position.
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