Open Position: Meaning and Risk in Trading
Last updated
Last updated
By
An open position in investing is any established or entered trade that has yet to close with an opposing trade. An open position can exist following a buy, a , a sell, or a . In any case, the position remains open until an opposing trade takes place.
An open position is a trade that has been established, but which has not yet been closed out with an opposing trade.
If an investor owns 300 shares of a stock, they have an open position in that stock until it is sold.
An open position represents market exposure for the investor, and the risk remains until the position is closed.
Day traders open and close their positions in a matter of seconds and aim to have no open positions at the end of the day.
For example, an investor who owns 500 shares of a certain stock is said to have an open position in that stock. When the investor sells those 500 shares, the position closes. Buy-and-hold investors typically have one or more open positions at any given time. Short-term traders may execute "; a position opens and closes within a relatively short period. Day traders and may even open and close a position within a few seconds, trying to catch minimal but multiple price movements throughout the day.
An open position represents market exposure for the investor. The risk exists until the position closes. Open positions can be held from minutes to years depending on the style and objective of the investor or trader.
Of course, portfolios are composed of many open positions. The amount of risk entailed with an open position depends on the size of the position relative to the account size and the holding period. Generally speaking, long holding periods are riskier because there is more exposure to unexpected market events.
The only way to eliminate exposure is to close out the open positions. Notably, closing a short position requires buying back the shares while closing long positions entails selling the long position.