Do you also often hear people in trading groups say “close position,” “liquidation,” or “roll over,” but don’t quite understand what these terms are for? Honestly, when I first entered the market, I was just as confused at first—later I slowly came to understand how important these concepts are to trading.

Simply put, closing a position means ending all the positions you hold. For example, if you buy some Apple stock AAPL, as long as you haven’t sold it, you’re “holding” or “maintaining the position.” Once you sell all the stocks, that is closing the position. At that point, your profit and loss is truly locked in—not just “paper gains.”

Opening a position and closing a position are actually opposites. Opening a position is when you start a trade—whether it’s buying or selling—but at that moment you haven’t realized any real profit or loss yet; you only have a possibility. Only when you close the position can you truly know whether you made money or lost money. For instance, I’m bullish on a certain stock and decide to buy one share—that is opening a position. Later, when the stock price rises to the level I’m satisfied with, I sell all of it—that is closing the position.

For people who trade futures, there’s another important concept called “open interest.” This refers to the total number of contracts in the market that haven’t been settled yet. If open interest increases, it usually indicates that new capital is continuously entering, and the existing uptrend or downtrend may continue. Conversely, if open interest decreases, it means investors are closing positions, and the market may be ready to reverse. I often watch the changes in open interest for Taiwan index futures to judge whether this market move has enough conviction.

Speaking of this, there’s no way around mentioning “liquidation,” which is the scariest thing in futures or leveraged trading. Because futures only require you to post margin to open a position, you can control a large position with very little money. But if the market moves in the opposite direction, your losses can exceed your principal. When your account’s margin remains insufficient, the broker will issue a margin call notice, asking you to add funds. If you can’t, they will forcibly close your position—that is liquidation. I’ve seen many people not only lose their principal due to liquidation, but also end up owing a huge pile of debt. So if you’re going to trade with leverage, you must set your stop-loss points and control your risk.

In addition, futures have a unique concept called “roll over.” Because each futures contract has an expiration date—for example, Taiwan index futures expire on the third Wednesday of every month. If you think the long-term trend is favorable and don’t want to exit, you need to switch the contracts nearing expiration to contracts for next month or even further months—that is roll over. Rolling over involves cost considerations; if the far-month price is higher than the near-month price (a positive spread), you will lose a bit of money when rolling over; and the opposite is also true.

After covering these concepts, the key is: when should you open a position, and when should you close it? Before opening a position, I always look at the overall market trend. If the weighted index is above the moving averages and is in a bullish structure, the success rate of opening a position can be a bit higher. Then I check whether the individual stock itself has fundamental support, and whether there are clear buy signals on the technical side—for example, a stock price breaking out of a consolidation range combined with an increase in trading volume is a good entry point. Most importantly, before opening, set your stop-loss point in advance, confirm how much loss you can tolerate, and then decide on the position size.

Closing a position is even more particular. My principle is “trade with the trend, protect capital with stop-loss, and take profits without greed.” Once the predetermined profit target is reached, close in batches—don’t get greedy and hope to catch another wave, otherwise you may end up giving back the earlier gains. When the stop-loss line is hit, you must close decisively—whether it’s a loss down to your preset percentage or the price breaking below technical support. As long as it’s triggered, cut it immediately. This is what Taiwanese investors often say: “Stop-loss is a basic skill.” If a stock’s fundamentals suddenly turn worse, even if you haven’t reached the stop-loss point, you should prioritize closing the position rather than waiting to get trapped.

To be honest, the timing to close is often harder to master than the timing to open. Many people are careful when opening a position, but hesitate when closing—so profits turn into losses. The best approach is to set rules in advance before entering the market, and strictly follow them so that emotions don’t influence your decisions. Whether you’re holding stocks or futures positions, managing the timing of entry and exit is the key to long-term, stable profitability.