Reviewed by Oct 05, 2020| Updated on
A position is the amount of collateral or security, currency and commodity being owned by a dealer, individual, institution, or any other financial organisation. The position is of two types: 1. Long position-This is first owned before being sold. 2. Short position-This is borrowed before being sold.
As per the market trends, fluctuations, or movements, a position may be unprofitable or profitable for the individuals. Reiterating the position’s value to reflect its exact current value in an open market is pointed to as the ‘market-to-market’ in the industry.
The term ‘position’ is used in numerous scenarios. The following are a few examples: - The dealers and agents generally have a record of long positions with respect to specific security so that they can encourage quick trading. - The traders close their position, which has yielded them a net profit of 10%. - The importers of crude have a natural position in rupees, as the rupee is relentlessly flowing in and out of their hands.
Positions may be speculative, or a direct result of a certain business. For instance, a currency speculator may purchase the United States Dollar, thinking that the value will go on to appreciate over time. This instance is considered to be as a speculative position.
Nevertheless, businesses that trade with the United States of America are going to be getting paid in the United States dollar, thus giving them a natural position on the United States dollar. The currency speculator will go on to hold on to the speculative position till the that he or she makes up their mind to liquidate the same.
When they do it, they make a profit or restrict a loss. Notwithstanding this, the companies that are trading the United States of America may not just give up their natural position in the United States dollars in the same way. The companies may filter their revenues by offsetting their position, and this is called hedging in order to protect themselves from currency fluctuations.