Complete Guide to Opening Positions, Closing Positions, Unclosed Positions, Liquidation, and Transfer of Positions | Trading Terms Explained Once and for All

Futures trading often involves terms like “Open Position, Close Position, Unclosed Position, Liquidation, Roll Over,” but many traders still have only a superficial understanding of these concepts. Today, starting from the actual operation process, we’ll thoroughly explain the true meanings of these trading terms.

Opening a Position is the Starting Point of Trading

Opening a position means the moment you decide to enter a trade. Whether buying or selling, as long as you establish a new position, it counts as opening a position.

When should you open a position?

Opening a position requires meeting several conditions:

Confirm the overall market trend is favorable
First, check if the weighted index is above important moving averages (monthly, quarterly), or showing a pattern of higher highs and higher lows. In a bullish environment, individual stocks have a higher success rate when opening positions; in a bearish market, it’s best to avoid or reduce positions.

Fundamentals of the stock are solid
Review revenue growth, profit improvements, or industry themes supported by policies. Avoid stocks with declining earnings or financial concerns. Good fundamentals can reduce sudden risks.

Clear technical signals appear
Pay attention to whether the stock price breaks out of consolidation platforms or previous highs, especially with increased volume, indicating buying interest. Confirm with MACD golden cross or RSI exiting oversold areas.

Risk management must be prepared first
Set stop-loss points before opening a position (e.g., 3%-5% below breakout price), determine your maximum tolerable loss, and then calculate position size. Avoid full exposure at once; diversify to reduce risk from a single asset.

In short, key points for opening a position are following the trend, fundamental support, signal confirmation, and pre-emptive risk control. Taiwanese investors often emphasize “Better to miss out than to buy recklessly.”

Closing a Position to Confirm Profit or Loss

Closing a position means ending your trade—selling all stocks or futures you hold and exiting that trade. Only after closing can you truly realize your profit or loss.

The core difference between closing and opening a position

When opening a position, you haven’t yet confirmed profit or loss—only a “possibility.” For example, with Apple stock (AAPL), when you buy, you might have unrealized gains or losses on paper, but these are not “real” profits. Only when you sell all shares do unrealized gains or losses become “realized” gains or losses.

Closing a position sounds simple but is critically important because the timing and method of closing directly affect the trading outcome. Closing too early might miss gains; closing too late might prevent stop-loss execution.

Note: Taiwan stocks operate on a “T+2” settlement system, meaning if you sell stocks today (close position), the funds will only be available after two business days. Plan your funds accordingly.

Practical methods for judging the timing of closing a position

Reach your preset profit target
Before entering, set a profit-taking point (e.g., 10% gain or reaching a specific moving average). Once reached, take profits in stages to lock in gains and avoid turning profits into losses. In a strong market, you can retain part of the position but should adjust take-profit points accordingly (e.g., close if price falls below the 5-day moving average).

Execute stop-loss triggers decisively
Whether using fixed points (e.g., cut loss at 5% loss) or technical support levels (breaking support or moving averages), once signals are triggered, close the position decisively. A well-known saying in Taiwan markets: “Stop-loss is the basic credit of investing.”

Fundamentals deteriorate, exit immediately
If the stock shows poor earnings reports, major negative news (e.g., high pledge ratios, industry policy reversal), even if stop-loss levels are not hit, it’s prudent to close the position to avoid sharp declines.

Technical reversal signals appear
Long black candlesticks, breaking below 20 or 60-day moving averages, volume spikes on down days, or divergence indicators (price hitting new highs but RSI not following) are warning signs to close.

Better use of funds elsewhere
If there are better investment opportunities or need to reallocate funds, consider closing weaker positions to improve capital efficiency and avoid “stuck in weak stocks, missing strong ones.”

The biggest enemies of closing a position are “greed” and “hesitation.” Follow your strategy, risk tolerance, set rules in advance, and stick to them strictly.

Unclosed Positions Reveal Market Momentum

Unclosed positions refer to the total number of contracts in futures or options markets that have not been offset or settled through opposite trades or delivery, serving as an important indicator of market depth and bullish/bearish momentum.

Market significance of changes in open interest

Increasing open interest
Usually indicates continuous inflow of new funds, suggesting the current trend may continue. For example, if the Taiwan index futures’ open interest increases during an uptrend, it signals strong bullish momentum with steady buying interest.

Decreasing open interest
Indicates traders are closing their positions, and the current trend may be nearing its end, possibly reversing or entering consolidation.

Warning uses of open interest

If the Taiwan index futures price rises but open interest declines, it could be a warning. This rally might be driven mainly by short covering (buybacks) rather than new long positions, indicating the rally’s foundation may be weak. Be alert to potential reversals.

Liquidation: The Ultimate Risk in Leverage Trading

Liquidation generally occurs in futures or leveraged trading because leverage amplifies gains and losses. You only need a small margin to open a position, but the risk is also magnified.

How does liquidation happen

If the market moves unfavorably, investors may face losses exceeding their account balance. Exchanges or brokers will require additional margin. When investors cannot meet margin calls due to market volatility, the platform will forcibly close positions, resulting in liquidation.

Specific example:
Suppose you go long on a mini Taiwan futures contract with an initial margin of NT$46,000. If the market moves against you and your account equity drops below the maintenance margin (say NT$35,000), you will receive a margin call. If you cannot top up within the deadline, the broker will liquidate your position at market price, leading to liquidation.

Consequences of liquidation

Liquidation can be devastating—losing all your capital and possibly owing debts. Traders using leverage must have strong risk management skills, including setting stop-loss and take-profit points, to avoid liquidation risks.

Smarter approach: To avoid such risks, minimize or avoid leverage, or use very low leverage ratios. Adjust your trading strategies and profit expectations to adapt to market conditions.

Roll Over: Unique to Futures Trading

Roll over is the process of transferring your existing futures contract into another with a different expiration date, a concept exclusive to futures trading.

Why perform a roll over

Futures contracts have fixed expiration dates (e.g., Taiwan index futures expire on the third Wednesday of each month). If you are bullish long-term and do not want to exit, you need to roll over. For example, if you bought December gold futures but now prefer January’s, you can exchange the December contract for the January one, extending your trading period.

Cost considerations for rolling over

Contango
When the distant month price is higher than the nearby month, rolling over involves selling low and buying high, incurring a small cost.

Backwardation
When the distant month price is lower than the nearby month, rolling over can generate a profit by selling high and buying low.

Many domestic and international brokers offer “automatic roll-over” services, but it’s essential to understand their rules and costs. Manual roll-over allows you to choose the best timing and price.

Reminder: If you only trade stocks or forex, there’s no need to consider roll-over concepts—just understand the ideas of closing, unclosed positions, and liquidation.

Summary: Practical Guide to Trading Terms

Understanding the concepts of opening a position, closing a position, unclosed positions, liquidation, and roll-over is fundamental for futures and leveraged trading. The key is to develop a trading plan based on market trend, fundamentals, technical signals, and risk management, and to execute it strictly. Remember: follow the trend, protect your capital with stop-loss, lock in profits, and you can survive and thrive in the trading market long-term.