Recently, I’ve noticed many people are unclear about terms like closing position, open position, liquidation, and rollover. Actually, these concepts are extremely important for those involved in futures or leveraged trading. Today, I’ll share my own experience to explain these terms, and also discuss when to open a position, add to it, or close it.

Let’s start with closing a position. Simply put, it means ending your trading position. For example, I am bullish on Apple stock AAPL, buy and hold; as long as I still hold the stock, my position isn’t closed. But when I decide to sell all the stocks, that moment is closing the position. The key point of closing is that only when you actually sell can you confirm whether you made a profit or a loss, and calculate your return rate. Be especially careful with Taiwan stocks because of the T+2 settlement system. If you sell today to close a position, the money will only be credited two business days later.

Opening and closing positions are actually antonyms. Opening a position means starting a trade, buying or selling a certain asset, hoping the price moves in your favor. But when you open a position, you haven’t actually made money or lost money yet; it’s just a possibility. From my experience, opening a position depends on whether the overall market trend is above the moving average, whether the individual stock’s fundamentals are stable, and whether there are clear breakout signals technically. Most importantly, set a stop-loss point first, then decide on the size of your position. Never go all-in at once.

As for adding to a position, this is a trap many people fall into. Adding means increasing your investment on top of an existing position. I’ve seen many people make money on their first entry and then rush to add more, only for the market to reverse and cause liquidation. So, the premise for adding is that the trend is confirmed to be correct, technical signals are clear, and each addition must have a definite stop-loss plan. Do not blindly keep adding.

Open interest is an important indicator for observing market depth. An increase in open interest usually indicates new capital entering, suggesting the current trend may continue; a decrease suggests traders are closing their positions, and the trend may be nearing its end. Especially noteworthy is that if the Taiwan index futures price rises but open interest declines, it could be a warning signal, indicating the rally is mainly driven by short covering rather than new longs, which may mean the foundation isn’t solid.

Liquidation is the most terrifying thing in futures and leveraged trading. Because you control a large position with a small margin, if the market moves against you, losses can exceed your initial capital. For example, if I go long on a small Taiwan index futures contract with a margin of NT$46,000, and the market drops causing my maintenance margin to be insufficient, the broker will issue a margin call. I must top up within the deadline; otherwise, I will be forcibly liquidated. That’s liquidation. It not only wipes out your principal but can also leave you owing money. So, leverage trading must have proper stop-loss measures, or better yet, avoid leverage altogether.

Rollover is a concept unique to futures. It involves exchanging your current contract for another with a later expiration date. Since futures contracts have fixed expiry dates (Taiwan index futures expire on the third Wednesday of each month), if you’re bullish on the long-term trend and don’t want to exit, you need to rollover. Rollover involves costs; when the futures are in contango, you sell low and buy high, but in backwardation, you might actually profit. Many brokers offer automatic rollover services, but it’s important to understand the rules and costs involved.

Returning to the timing of closing a position, my core principle is to follow the trend, protect capital with stop-losses, and take profits without greed. When your preset target is reached, close in stages— for example, take half profits at a 10% gain, and adjust the stop-loss on the remaining position at any time. If the price falls below your stop-loss level, cut your losses decisively. Taiwanese investors often say that stop-loss is fundamental; you must not hesitate. Deterioration of fundamentals, technical reversal signals, or the need for capital reallocation are all reasons to close.

The biggest risks in closing a position are greed and hesitation. My experience is that you should set clear rules before entering a trade and strictly follow them to secure profits and control risks. Don’t chase perfect entry prices; it’s better to miss out than to buy recklessly. Only then can you survive longer in the market.