position (trading)

finance

Also known as: trading position

Written byDoug Ashburn

Fact-checked byThe Editors of Encyclopaedia Britannica

Also Known As:: trading position

In financial markets, whenever you initiate a transaction that places a security (e.g., a stock, bond, exchange-traded fund (ETF), or derivatives contract) into your account, the exposure you have to price fluctuation in that security is called a position, or trading position. A position is either “long” or “short.”

If you buy 100 shares of a stock or ETF, you have a long position. If you were to sell it, you would no longer have that position (“flat” in trader lingo). Some traders will lead with a “short” position by selling the security in hopes of buying it back for a profit.

For example, a trader who thinks the price of crude oil is too high and set to fall might sell a crude oil futures contract (i.e., take a “short” position in crude oil), and then buy it back (“flatten the position”) when they either hit their profit target or, if the price goes higher, hit the maximum amount they’re willing to lose on the trade.

Proper position sizing and management are key components of a successful trading strategy.

This article was most recently revised and updated by Doug Ashburn