Opening, holding and closing positions in the futures market

Opening, holding and closing futures positions

Perpetual futures allow you to hold positions indefinitely, but futures regulated by the United States have clear start and end dates. At the expiration date, the contract will be settled in cash at the agreed price. Typically, contracts have monthly or quarterly expiration dates.

However, this does not mean that there is no flexibility in opening and closing positions. In this article, we will learn how investors manipulate their positions in the futures market.

Depending on whether investors are long or short (you can learn more in this article), futures open and close positions are slightly different.

Opening and closing long positions on the expiration date

If investors expect asset prices to rise, they can establish long positions through futures contracts. On or before the expiration date, investors can sell the contract and lock in any profits or losses.

Opening and closing short positions on the expiration date

On the other hand, if investors believe that the price of an asset will fall, they can sell futures contracts at the current price and establish short positions. Their goal is to buy it back at a lower price at or before maturity and profit from the difference.

Close positions

In addition to closing positions on the expiration date, investors have several options for closing positions. They can also close their positions before the expiration date or roll over the contract to the next expiration month.

Close positions before expiration

Investors do not have to wait until futures contracts expire to take action on open interest. They can close their positions at any time during the contract period.

For example, if investors hold a long position and the price has risen, they can immediately sell the contract to lock in profits and avoid further price changes before expiration.

Similarly, if prices fall, investors holding short positions can buy back the contract and close it to ensure a profit.

The main advantage of early liquidation is that investors can limit losses or lock in gains before the contract expires.

Contract rollover

However, if investors believe that the position will continue to be in good shape, they can continue to hold a position beyond the expiration date by rolling over the contract.

Rollover refers to closing an existing contract and opening a new contract with a later expiration date, effectively extending the position without settlement.

For example, if investors hold a long position in Bitcoin futures that will expire at the end of the month, but believe that the price of Bitcoin will continue to rise, they can roll over the position. To do this, they will close their positions and immediately open positions for the next trading period so that they can continue to profit from their positions.

Review

Key Terms

Positions

The amount and type of trader\'s exposure to specific futures contracts. It shows whether traders are betting on asset prices rising (long) or falling (short). It also shows the number of contracts they hold.

Expiration Date

The date when a futures contract ceases to trade and is settled with the underlying asset or cash. Most contracts have monthly or quarterly expiration dates.

Contract extension

Liquidate current contracts and open new contracts with a later expiration date.

Although US-regulated margin futures have start and end dates, investors have flexibility in the futures market. They can open, hold, close or roll over positions at any time based on their goals.