What are Positions in Stock Market? Positions Definition, Type & More!

What are Positions in Stock Market? Positions Definition, Type & More!

Understanding Positions in Stock Market: Depending on the market trends and movements an individual can use different strategies to invest or trade in the stock market. But the one thing that is common when individuals implement any strategy is that they have to create positions in the stock market. 

In this article, we will be discussing the meaning of positions in the stock market and the different types of positions an individual can take.

What are Positions in Stock Market?

Positions in the stock market mean the number of stocks owned (which are either bought or short) by an individual. 

An individual takes a position in the market when they purchase a stock or if they sell the stock depending on their conviction. An open position will be followed by closing the position at some point in the future.

What is meant by long and short positions?

Individuals can take a long position or a short position depending on the conviction they have about the market. Let us now understand these positions in detail.

1. Long Position in Stock Market

Taking a long position means taking a fresh buy position in the market. A long position is taken when an individual has a bullish conviction about the market. Here are ways in which an individual can take a long position in the stock market.

1.1 In the Equity/Cash Segment

An individual can take a long position by purchasing the shares on delivery and holding them for any number of days required.

Individuals can also take a long position by executing an intraday trade where they buy the stocks and hold them until the market closes for the day. In an intraday trade, the individuals will have to reverse their positions by the end of the day.

1.2 In the Derivative Segment

There are two ways for an individual to take a Long position in the Derivative market.

The first way is through a futures contract wherein you become the buyer of the futures contract and take the reversal position at the end of the expiry.

The second way is to enter a call option buy becoming the buyer of the option contract. Here the buyer has the choice of executing or not executing the contract.

A long position can also be taken in a put option contract by becoming the buyer of the contract. But, put options are bought with a bearish conviction of the market.

To know more about options, you can read this article on profits in options trading.

2. Short Positions in Stock Market

Taking a short position taking a fresh sell position in the market. A short position is taken when an individual has a bearish conviction about the market. Here are ways in which an individual can take a short position in the stock market.

2.1 In the Equity/Cash Segment

Individuals can take a short position by executing an intraday trade where they sell the stocks. But they have to reverse the position by the end of the day. 

A short position cannot be taken on delivery as shares cannot be sold on a long-term basis. 

2.2 In the Derivative Segment

There are two ways for an individual to take a short position in the Derivative market.

The first way is through a futures contract wherein you become the seller of the futures contract and take the reversal position at the end of the expiry.

The second way is to enter a call option by becoming the seller (writer) of the option contract. Here the seller gets a premium from the option buyer for the choice of execution given to the buyer.

A short position can also be taken in a put option contract by becoming the seller of the contract. But, put options are sold with a bearish conviction of the market.

What are Open Positions in Stock Market?

An open position is an investment or trade that an individual has entered but which is yet to be closed. The duration of an open position can vary from minutes to years depending on the objective and style of the individual.

While holding an open position, an individual is exposed to market risk. The amount of risk will vary depending on the size of the position and the holding period of an individual.

What are Closing Positions in Stock Market?

A closing position refers to canceling out an existing position held in the market by taking an opposite position. This means buying back the security in short sales and selling the position in case of long positions.

Individuals will earn a profit or loss on the difference between the price at which the security is opened and the price at which the security is closed.

Also Read: How to Calculate Profit in Options Trading?

In Closing

In this article, we discussed what positions in stock market mean and the types of positions an individual can have while investing in the stock market. In simple terms, Positions in stock market means the number of stocks owned by an individual. 

An individual can take long and short positions in several ways in the market. It is always recommended to know the pro and cons of each type of position in the stock market which can help an individual to take better trading or investment decisions in the market.