Opening a position is the first step in contract trading, referring to establishing a long or short position based on price rise or fall expectations; closing a position is the operation to end the trade and lock in profits or losses. 1. Opening a position is divided into long positions (bullish buying) and short positions (bearish selling), equivalent to buying first and selling later or borrowing first and returning later; 2. Closing a position is to end the holding through reverse operations, earning the price difference or stopping losses, completing a complete trading process of entering and exiting.
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In contract trading, opening and closing a position can be simply understood as "starting a trade" and "ending this trade," just like the process of "purchasing" and "selling" in business, except that what is traded here is the expectation of price rise or fall.
- Opening a position: The first step to "place a bet"
If you think a certain item (like Bitcoin) will rise or fall in price and want to profit from the price difference through contracts, you need to "open a position."
If you think it will rise, you open a "long position" (bullish), equivalent to "buying first and selling later": for example, if Bitcoin is currently $10,000, you open a long position, and when it rises to $12,000, selling it will earn you a $2,000 price difference.
If you think it will fall, you open a "short position" (bearish), equivalent to "borrowing first and returning later": for example, if Bitcoin is currently $10,000, you borrow 1 and sell it, and when it falls to $8,000, you buy it back to return, earning a $2,000 price difference in between (selling at $10,000 when borrowing and buying back at $8,000 when returning, netting $2,000).
After opening a position, you have an "incomplete trade" in your account, and profits and losses will fluctuate in real-time with the price. - Closing a position: Ending the trade, securing profits (or recognizing losses to exit)
When you feel that you have earned enough or are afraid of losing more and want to end this trade, you need to "close the position."
If you previously opened a long position, closing the position means "selling" the holdings you have, taking the profits from the rise (or recognizing the losses from the fall).
If you previously opened a short position, closing the position means "buying back" the borrowed items to return them, taking the profits from the fall (or recognizing the losses from the rise).
After closing a position, this trade is completely over, and your profits and losses will be fixed, no longer fluctuating with the price.
Here’s a real-life example:
You think a certain smartphone will increase in price next week (open a long position), so you buy 10 units now; next week, when the price really goes up, you sell the 10 units (close the position) and earn the price difference.
Conversely, if you think the smartphone will decrease in price (open a short position), you first borrow 10 units from a friend and sell them, then after the price drops next week, you buy back 10 units to return to him (close the position), earning the price difference in between.
The core idea is: opening a position is "entering to build a position," and closing a position is "exiting to settle," completing a contract trade in one entry and one exit.