Introduction
In terms of investing, an open position means any established or entered trade that is yet to be closed with an opposing trade. An open position can arise after a buy, long position, sale, or short position.
Understanding Open Position
Consider that an investor owns 500 shares of a certain stock. That means there are open positions in that stock. Once the investor manages to sell those 500 shares, the open position closes.
Usually, buy-and-hold investors have one or more open positions at any given point in time.
Limiting Risk
Investors are recommended to limit risk by only holding open positions that equate to 2% or less of their total portfolio value. By diversifying the open positions to various market sectors and asset classes, an investor can reduce the risk.
Investors can adjust the allocation per sector according to market conditions, but keeping the positions up to 2% per stock to even out the risk.
