Position (finance)
From Wikipedia, the free encyclopedia
In finance, a position may be:
- A commitment to buy or sell a given amount of securities or commodities;
- The amount of securities or commodities held by a person, firm, or institution; or
- The ownership status of a person's or institution's investments.
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[edit] Derivatives trading
In derivatives trading, the concept of a position is used heavily. 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.
[edit] Long position
- When a trader buys an option contract that he has not already written (i.e. sold), he is said to be opening a long position.
- When a trader sells an option contract that he already owns, he is said to be closing a long position.
[edit] Short position
- When a trader writes (i.e. sells) an option contract that he does not already own, he is said to be opening a short position.
- When a trader buys an option contract that he has written (i.e. sold), he is said to be closing a short position.
The long and short of it is that: buyers are referred to as the long; and sellers are referred to as the short.
