Closing a position is not exactly the same as selling, although selling is one way to close a position. Closing a position refers to the act of exiting an investment or trade, whether it is a long or short position. It can involve selling a stock or financial asset, but it can also involve other actions such as buying to cover a short position or simply letting an investment expire.
When you open a position, you are essentially entering into a contract or agreement to buy or sell a financial asset at a certain price. This could be done through buying shares of a stock, buying options contracts, or entering into futures or forex trades, among other methods.
Closing a position means you are terminating this contract or agreement. If you are in a long position, where you have bought an asset with the expectation that its value will rise, closing the position would involve selling the asset. This would typically be done at a higher price than when you entered the position, resulting in a profit.
On the other hand, if you are in a short position, where you have sold an asset that you do not own in the hopes that its value will decline, closing the position would involve buying back the asset. This is known as “buying to cover” and is essentially the opposite of selling. If the price has indeed declined, you would be able to buy the asset at a lower price than when you initially sold it, resulting in a profit.
It’s important to note that closing a position can also happen without actively selling or buying to cover. For example, if you hold options contracts, they can expire worthless if the price of the underlying asset does not reach the required level. In this case, you would not need to actively sell the options, as the contract would simply expire and your position would be closed.
While selling is one way to close a position, closing a position can involve other actions such as buying to cover or simply letting an investment expire. The specific method of closing a position depends on the type of position you hold, whether it is long or short, and the financial instrument involved.