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What Is a Stock Market Position?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 30 June 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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A stock market position is a term that is used to identify the level and type of commitment that an investor currently has in a given market. Stock market positions may involve both long and short positions, with each approach offering certain benefits as well as posing risks to the investment. Any position will involve the use of buying stocks as well as selling stocks in intervals that are considered in line with both the movement of the stock market and the investment goals of the individual investor.

One type of stock market position is known as a short position. This particular strategy involves securing access to an investment with the intention of selling it at a profit in a relatively short period of time, usually before the investment is anticipated to begin dropping in value. This approach usually involves borrowing shares then selling them while they are still being traded at a higher price per unit. After the shares drop in value, the investor repurchases them at that lower price and returns them to the owner. For his or her efforts, the investor keeps any profits made by the short selling strategy.

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While this particular type of stock market position does provide the chance to earn a profit, there is always the risk that the sold shares will not perform as anticipated. For example, if the borrowed shares should rally rather than decrease in value after the sale, the investor will have to repurchase them at a higher rate in order to return them to the owner. When this occurs, the investor will experience a loss from the position rather than posting some type of gain.

A different example of a stock market position is the long position. With this approach, the investor purchases a security with the intention of holding onto it for an extended period of time, at least more than one calendar year. This position is usually utilized when there is an expectation that the value of the security will enjoy a more or less constant increase in value over the long-term. A variation on this type of approach can be to secure a futures option that allows the investor to exercise the right to buy the option at a specified time in the future, but does not commit the investor to actually make the purchase. This approach will allow the investor to exercise the right to buy if the security or option has performed according to expectations while also allowing the investor to decline to purchase if the outcome is not what the investor hoped.

Essentially, a stock market position is simply a means of identifying how an investor is currently engaging in various investment opportunities within the marketplace. It is not unusual for an investor to carry several different types of positions at any one time, with the portfolio containing a combination of options that are intended for holding over the long term, a futures option that may or may not be exercised at some point, and short sale strategies that are designed to provide a return sooner rather than later. Many investors not only diversify the range of investments contained in a portfolio but also the positions held, as a means of creating greater security and minimizing overall risk.

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