Closing is a commonly used term in commodity futures trading, which can be manually completed or automated by the system. Closing positions can be divided into two types: hedging and forced closing. Regardless of the type, it is aimed at achieving risk control and maximizing profits in transactions.
Closing position refers to the act of futures investors buying or selling stock index futures contracts with the same variety, quantity, and delivery month as their stock index futures contracts, but with opposite trading directions, in order to settle stock index futures trading. It can also be understood as: closing a position refers to the trading behavior of a trader to close their position, and the method of closing is to make opposite hedging transactions in the opposite direction of the position.
Closing positions in futures trading is equivalent to selling in stock trading. Due to the bidirectional trading mechanism of futures trading, there are two types of closing positions corresponding to opening positions: buying closing positions (corresponding to selling opening positions) and selling closing positions (corresponding to buying opening positions).
1、 Classification of Closing Positions
Closing positions can be divided into hedging and mandatory closing positions. Hedge closing refers to futures investment companies buying and selling futures contracts of the same delivery month within the same futures exchange, in order to settle previously sold or purchased futures contracts. Compulsory closing refers to a third party (futures exchange or futures brokerage company) outside the position holder forcibly closing the position of the position holder, also known as being cut off or being cut off.
There are many reasons for 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. In a regulated futures market, the most common occurrence is forced liquidation due to insufficient trading margin for customers. Specifically, it refers to the act of a futures company forcibly closing some or all of the customer's positions to avoid further losses, and filling the margin gap with the funds obtained, when the trading margin required for the customer's position contract is insufficient and the customer fails to timely increase the corresponding margin or actively reduce the position according to the notice of the futures company, and the market situation is still developing in the direction of unfavorable position.
2、 The difference between hedging and compulsory liquidation
During the trading process, futures exchanges adopt mandatory closing measures in accordance with regulations, and the losses incurred in closing positions shall be borne by members or customers. If the profit from closing positions is forced to be closed by a futures exchange due to violations by members or customers, it shall be included in the non operating income of the futures exchange and no longer allocated to the violating members or customers; If the position is forcibly closed due to changes in national policies and continuous rise or fall of the limit, it should be transferred to members or customers.
【 EBC Platform Risk Reminder and Disclaimer 】: There are risks in the market, and investment needs to be cautious. This article does not constitute investment advice.