A “position” is a single stock that a trader owns in his portfolio. For example, a trader may own three different stocks, i.e., “carry three positions.” The term “position” may be used in a variety of trading contexts and situations.
Establish (Start, Open) a Position
Start or open a position in stock trading by purchasing a stock. Some traders do not buy their entire position at once. Rather, they “build a position” over time by buying a “starter position” (a small amount) first and watching how the stock acts before deciding whether or when to add to it.
One of the basic rules of trading is to limit risk by limiting exposure to any one stock. No matter how much a trader likes a stock or how excited he feels about its prospects, he must discipline himself to limit the dollar amount (or percentage of his portfolio) that he allocates to any one stock, which determines the maximum number of shares in a position. A small position would indicate that its size is below the maximum set by the trader; a large position, or a full position, is the maximum amount a trader is willing to risk in the stock.
Position trading, or swing trading, means trading intermediate stock trends that can last anywhere from several weeks to several months.
Core vs. Speculative Position
Some traders put the stocks they trade into different categories. Larger more established stocks with good long-term prospects usually become “core positions,” or positions that a trader intends to keep longer and feels more secure about. Speculative positions are opportunistic trades. A trader carrying a core position may decide to take advantage of short-term price fluctuations by “trading around the core position.” For example, a trader may decide that her maximum core position in XYZ is 1,000 shares, but she may buy or sell another 200 shares around it to profit from short-term price swings.
Reduce / Close Out Position
To “reduce a position” means selling a certain number of shares to take partial profits, to reduce exposure to a particular stock if it is not acting according to the trader’s expectations, or as a precaution if market conditions deteriorate. To “close out a position” means to sell all the shares of a particular stock.
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