Your position with a stock refers to your ownership of it and the status of that ownership. You might be holding it, or you might be short on it. Understanding their position in stock market trading, position trading and day trading can help beginners better understand what others are talking about when you are discussing investment strategies.
How Much Stock Do You Have?
The first issue is how much stock you have because the amount of your stock is part of your position. You might say “I’m short 1,000 shares at $20” if someone asks your position. Or you could say that you’re long 1,000 shares at $20. You'll have different positions in each of those stocks.
Long vs. Short Position: What's the Difference?
There are two main types of positions in stock trading: long and short. When you make a stock purchase, you establish your position. Y
ou can purchase the stock with the intent of profiting from it because you believe the price per share will go up. In this case, you have a long position.Your position is open while you own stock. You close your position by selling.
You can establish a short position by agreeing to a contract that has you borrowing stock you don’t own. You're betting that it will go down in price. You make an agreement to return the stock later even if it's worth more than you sold it for after you borrowed it. You win if the price of the stock goes down after you sell it.
An Example of a Short Position
Let’s say you take a short position by borrowing 1,000 shares from a broker at $20 per share for a total of $20,000. You sell it to someone else at the same price and make $20,000. You still owe 1,000 shares – not $20,000 – to your broker.
If the stock goes down to a lower price, perhaps $15 per share, you can close your position at that time by buying 1,000 shares of stock for the new price of $15,000. You can then return the 1,000 shares to your broker, making $5,000 in profit. This happens automatically when you make a short sale. You'll lose $5,000 if the price goes up to $25 per share and you have to close your position.
What's an Open Position?
You have an open position if you could potentially lose money because the sale of the stock isn't complete, explains the Cambridge Dictionary. Your trade might have been based on the value of currencies or shares at the time you made it, and those factors might change by the time the sale is completed.
What's a Delta Neutral Position?
"Delta neutral" refers to a trading strategy, according to the Commodity Futures Trading Commission. It creates positions that aren't as vulnerable to smaller shifts in price. Delta is a metric that attempts to forecast changes in price. You want it to remain in the area of zero, or "neutral."
What's Position vs. a Trade?
Your position is your status and percentage of ownership in a company, whereas a trade is the purchase or sale of your shares. You're trying to make money because the price has changed. However, the U.S. Securities and Exchange Commission warns that this isn't an instantaneous transaction. Trades can take a bit of time, although they’re typically achieved in the short term, not weeks and months later.
Let's say you have an online brokerage account. You enter a trade and it goes to your broker, which must then determine what market to send it to. Plus, brokers have a "duty of execution." They have to consider all orders received from all customers in deciding the most favorable terms.
What's a Short Sale?
You've entered into a short sale if you sell a stock that you don't own. A short selling deal isn't technically final until the borrowed stock is delivered by or for you. The sale isn't settled until this occurs. You'll then close out your position, often by purchasing stock on the open market to return the borrowed stock to the lender.
Frequently Asked Questions
What’s a Derivative?
A derivative is a trade in which the value of your transaction derives from and depends on the value of another asset.
What Is Forex Trading?
Forex effectively stands for “foreign exchange.” It involves selling and/or buying global currencies.
What’s a Day Trader?
A day trader engages in ongoing trading during the course of the day with the goal of profiting from volatility involving quick price movements and fluctuations. The idea behind day trading is to cash in immediately on higher prices. The approach is different from the approach engaged in by position traders who hold their position in an asset over an extended time period.
Steve Milano has written more than 1,000 pieces of personal finance and frugal living articles for dozens of websites, including Motley Fool, Zacks, Bankrate, Quickbooks, SmartyCents, Knew Money, Don't Waste Your Money and Credit Card Ideas, as well as his own websites.