Position definition

What is a position?

A position is the expression of a market commitment, or exposure, held by a trader. It is the financial term for a trade that is either currently able to incur a profit or a loss – known as an open position – or a trade that has recently been cancelled, known as a closed position. Profit or loss on a position can only be realised once it has been closed.

A position is defined by size and direction. This means that your position can vary depending on the quantity of the asset, and whether you are buying or selling the asset. There are two main types of position: long positions and short positions. A long position means that you are buying an asset or speculating that the asset will increase in value, whereas a short position aims to make a profit when an asset’s price decreases.

Positions are the way in which a trader will hope to make a profit – a position is profitable or unprofitable depending on whether the market price moves in favour of, or against, the trade.

Examples of a position

Let’s say you believe AUD/USD is going to increase in price. You decide to buy into the market, taking a long position on the pound rising in value. The market does increase as you predicted, so you close your position and lock in your profit.

If you thought the price of the pound was going to fall instead, you would have taken a short position. This would mean selling AUD/USD in anticipation of the market decline.

The definition of a position can vary depending on which asset you are trading. For example, a position that is for the immediate delivery of a currency or commodity is referred to as ‘spot’, whereas a position with a set transaction date is called a futures position.

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