An open position in trading refers to any trade that has been initiated but not yet closed with an opposing trade. This means the trader currently holds a market exposure that can result in either a profit or a loss depending on how the price of the asset moves
Key points about open positions:
- An open position can be either long (buying an asset expecting its price to rise) or short (selling an asset you do not own, expecting its price to fall)
- The position remains open until the trader executes an opposing trade to close it (e.g., selling the asset if long, or buying it back if short)
- While the position is open, any gains or losses are unrealized ; they become realized only when the position is closed
- Open positions represent market exposure and carry risk, as the market can move against the trader’s expectations
- The duration of an open position can vary widely-from seconds in day trading to years in buy-and-hold investing
- Risk management strategies, such as diversification and stop-loss orders, are important to limit potential losses from open positions
Example:
If you buy 100 shares of a stock at $100, you have an open long position. If the stock price rises to $120, your open position is showing an unrealized profit of $20 per share. If the price falls to $90, you have an unrealized loss of $10 per share. You realize the profit or loss only when you close the position by selling the shares
. In summary, an open position is simply a trade that is active and exposes the trader to market risk until it is closed by an opposite transaction
