The difference between closing and exploding positions

2023-06-30
Summary:

Closing and unwinding are two common terms in financial markets, both of which are related to investors' risk management in trading. Although they all involve investors closing their positions, there are some important differences between closing and exploding positions.

The difference between closing and exploding positions is different in nature, form, and reasons. The main difference is that closing a position is an active act of closing a position by investors, which requires them to build and hold positions with the aim of stopping losses or profits. Bursting positions is a passive and forceful act of closing positions, which is not what investors expect.

The difference between closing and exploding positions

Both liquidation and liquidation are common terms, especially when liquidation is the least desirable situation for investors. However, many investors are not very familiar with the concepts of liquidation and liquidation, and it is particularly easy to confuse forced liquidation and liquidation.


The difference between closing and exploding positions

1. Different properties

Short positions refer to situations where the customer's equity in an investor's margin account is negative under certain special conditions. Bursting a position is when the loss exceeds the margin in your account. The remaining funds after the company's forced liquidation are the total funds minus your losses, usually leaving a portion.

Closing position is a term derived from commodity futures trading that refers to the transaction behavior of one party buying or selling futures contracts in order to cancel them. Closing is a collective term used in stock trading to refer to the behavior of long sellers selling their purchased stocks or short sellers buying back their sold stocks.


2. Different forms

Closing a position refers to offsetting an existing futures contract through an equal number of futures transactions with opposite directions, in order to close the futures transaction and relieve the obligation to deliver physical goods at maturity.

When there is a significant change in the market situation, if the vast majority of funds in the investor's margin account are occupied by trading margin and the trading direction is opposite to the market trend, due to the leverage effect of margin trading, it is easy to have a short position.


3. Different reasons

There are many reasons for the forced closing of positions in futures trading, such as customers' failure to timely add trading margins, violations of trading position restrictions, and temporary changes in policies or trading rules.

Short positions are possible if there is no set stop-loss point before trading or if there is no strict stop-loss operation during the trading process. You can combine stop loss and position management and use technical conditions to stop loss.


4. Subject

Closing a position is an active action by investors, who decide when to proceed with the closing operation. Bursting a position is enforced by the system or exchange, usually when investors are unable to meet margin requirements or have losses exceeding their account's tolerance.


5. Purpose

Closing positions is done to control risks, protect profits, or adjust trading strategies. Bursting positions is to forcibly close and liquidate positions to ensure the normal operation of the market and risk control for investors.


6. Impact

Closing a position is usually a planned and controlled action that can be carried out based on market conditions and investors' judgments. Bursting positions occur when the market fluctuates or investors fail to adjust risks in a timely manner, which may lead to significant losses or the loss of account funds.


Overall, closing positions is a way for investors to actively operate, aiming to control risks and gain profits, while closing positions is a risk control measure enforced by the system or exchange, aimed at ensuring the normal operation of the market and investor risk control.

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