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Options Trading: A Guide To Open Trading and Close Trading

22 July 2020 No Comment

Trading in simple language means exchanging goods. However, in the financial market (although the principle is the same) trading is buying and selling shares of a company or other such financial assets. The process of trading involves buying the assets at a smaller price and selling them for a higher price.

Online trading can be used to trade almost anything from currencies to stocks, commodities, and physical goods. Out of all the markets, the forex market is the largest and the biggest stock exchange in the world. Know more about online trading and how to do it in by clicking here.

What is Open and Close Position In Trading?

There are two positions in trading. One is open, and the other is the closed position. When the trader enters the market, they open a position, and when the trader exits a market, they close a position. To understand this, in an open position, the trader holds a certain quantity of the share or financial asset. Whereas in the close position, the trader sells the asset and leaves the market.

The open position is of three types; long, short, or a sell. The trader who is in the process of buying an asset is in a long position, or they are going long. The ones that are selling assets are in a short position, or they are going short. If you go long, it means that you have bought the asset in the hopes that its price will rise, and you will gain profit when you sell it.

The short position is when the trader benefits through selling the assets. The broker will lend the asset to the trader who will then sell the asset in the market and then repurchase it when the prices have gone down.

For example, the trader loans 10 barrels of oil from a broker for $100 each and sells it in the market. He gets $1000 for the sales. However, within the next few weeks, the price goes down to $90 each, and now he buys the barrels for $900. He returns the barrels to the broker and earns $100 while doing so. This is short position trading.

The time between the opening and closing is called the Holding Period, which can differ from a few minutes to days and even months and years. The close position, even though usually initiated by the trader, can also be sometimes initiated by the brokerage firm in case the stock is showing a steep decline.

The open and close position can be explained with this example; if the trader has bought long position stocks of XYZ enterprise and expects the price to rise two times in the next month. He will be open for the next month while waiting for the price hike. Once the price is two times, he will sell the stock and close it.

Open trade is often risky as the open position puts the trader in a vulnerable situation. The day traders make sure that they close all their open positions by the end of the day. This is because if they wait for another day, there is a chance that the market turns over, and they might have to incur losses.

For the investors, the open position should only be for 2% or less of their total portfolio. The risk can also be reduced through investment in various sectors and companies.

How To Start Trading Online?

It is extremely easy to start trading online, especially now when buying and selling of stocks is just a click away. The first step is to open an account with an online broking firm.

Make sure that you pick a trustworthy broking firm with affordable brokerage and maintenance costs. You can also take advice from websites such as tradingreview.net and research about the stocks, brokers, and finance programs.  Make sure to check the registration of the broker before providing them with your personal information.

The second step is to understand the stock market and how it works. If you know the basics of trade, it will help you in making smart investments. You should always keep an eye on the financial news and even take up courses if possible, to improve your judgment of the market.

Deciding how much you want to invest in trade is also important as it can be really risky. So, you should always set a budget and stick to it while investing in stocks. Even though the positive aspects of online trade are glorified, it should be noted that there are negatives aspects as well.

You can also check out the online stock simulator. This is where you can easily practice trading without the risk of losing any money. The online stock simulator is usually free to access and easy to understand.

You can start investing in smaller stocks in the beginning to get the hang of the trade before going in full force. Also, know that trading is more like a full-time job. It is different from investing, where you buy and hold shares. In trade, you will have to make sure that you are aware of the market and its trends to earn profits regularly.

Lastly, always invest smartly with a plan. Know how much you are willing to lose and how much increase limit you want. Always know your risk profits and invest in the stocks that match your profile the best and mitigate any risks.

Open and close trade are two important components of trading. Knowing when to open and when to close are the skills that each trader should master.

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