How to Close an Open Position in Forex
- Active trades are referred to as open positions.
- Open positions remain subject to fluctuations in the exchange rate.
- Open positions are closed by entering into a trade that takes the opposite position to the original trade.
- The net effect is to bring the total amount for the currency pair back to zero.
Realizing Gains / Losses
- It is important to understand that gains or losses for open positions are still unrealized.
- Only when you close a position do you actually realize the gains or losses for the trade, thereby affecting the actual cash balance of your account.
Closing a Long Position
- To close a long position, you must sell an equal amount of the same currency pair to reduce your long position to zero.
- For instance, if you are long $100,000 EUR/USD, you need to sell $100,000 EUR/USD back into the market to reduce your EUR/USD holdings to zero.
- If you receive more when you sell than you paid to buy the order, you earn a profit. If you receive less, you realize a loss.
Closing a Short Position
- A short position is the opposite of a long position – think of it as holding a negative amount of a currency pair.
- In order to close a short position, you need to buy enough of the currency pair to bring your position back to zero.
- For instance, if you are short $100,000 EUR/USD, then you must buy $100,000 EUR/USD to close the short position. If you can buy this back for less than you earned when you sold it originally, the difference is retained as profit.
Partial Position Close
- It is possible to partially close an open position by only selling or buying enough to partly offset the open position.
- For example, selling only $75,000 when you have an open position of $100,000 EUR/USD, closes three-quarters of the original position, leaving an open EUR/USD position of $25,000.
The OANDA fxTrade trading platform automates the process for closing a position for you. If, for instance, you have a short position consisting of 50,000 units of USD/CAD, you need only click a single button to instruct fxTrade to create a buy order for 50,000 USD/CAD to close your position and realize your return.