Closing a Position

Closing a position – also called closing out or offsetting a position – means ending an open trade by entering into an offsetting transaction. The term originally comes from derivatives and futures trading. To close an open short position, for example, the trader has to enter into a corresponding long position, i.e. buy back the same quantity; a long position, in turn, is closed by selling.

How it works

The offsetting trade cancels out the original position, so that the trader no longer has any exposure in that instrument. Only then is the result final: the difference between the opening and closing price turns the paper profit or loss into a realised one. A position can be closed manually with a market or limit order, or automatically when a stop-loss or take-profit order is triggered. Closing only part of a position is also possible.

Example: a trader opens a short position of 100 share CFDs at $80. A few days later, the price has fallen to $72, and the trader buys 100 CFDs on the same share to close the position. The gain of $8 per share, or $800 in total, is now realised – before costs.

Why it matters for traders

On most forex and CFD platforms, positions are closed with a "Close" button that automatically places the offsetting order. On accounts that allow hedging – holding long and short positions in the same instrument at the same time – an opposite order may, however, open a new position instead of closing the existing one. Both positions then remain open: they offset each other's price risk, but costs such as financing charges can continue to apply. A trader who has closed all positions is flat.