As companion series of Blockchain 101, Contract Trading 101 is the beginners guide to understand contract trading-- a practical tool for hedge, arbitrage and speculation.
In contract trading, there are two trading types, “open” a position and “close” a position.
Opening a position is also called establishing a position. It has two trading directions: “Open Long” and “Open Short”.
If an investor is bullish, he/she can place an “Open Long” order to buy a certain number of contracts. If the order is filled, he/she will hold a long position.
If the investor is bearish, he/she can place an “Open Short” order to sell a certain number of contracts. If the order is filled, he/she will hold a short position.
Closing a position means that the investor clears or reduces an existing position.
It also has two trading directions: “Close Long” and “Close Short”.
If an investor currently holds an existing long position but turns bearish on the trend of the market, he/she can place a “Close Long” order to sell a certain number of contracts to reduce or clear the long position.
If the investor currently holds a short position but turns bullish, he/she can place a “Close Short” order to buy a certain number of contracts to reduce or clear the short position.
In summary, users establish positions by placing “Open Long/Short” orders, they start to hold contract positions once their “Open Long/Short” orders are filled.
Before the contract expires, users can get rid of their holding contracts by placing “close” orders. They can close all their existing positions or just partial of them.