What is position trading?

Position trading is a long-term approach that involves keeping trades open for significant lengths of time in an attempt to benefit from larger price movements.

It involves ignoring short-term fluctuations in the expectation that markets will eventually align with your strategy. In the cryptocurrency sphere, a similar approach is referred to as hodling.

Position traders may keep trades open for many months or even years. While this can increase profits if markets consistently move in your favour, it can also up the risk if they go in the opposite direction and never recover.

Trailing stop orders are favoured among position traders as they allow for a trade to stay open while it remains profitable. This prevents a long-term trade from being closed before its full potential has been reached.

Through derivative products such as CFDs, position traders can take either position on a market. You can take a long ('buy') position if you expect an asset's price to rise while, if you believe that a market has become overvalued and is due to fall in price, you can opt for a short ('sell') position.

Find out more about CFDs in our in-depth guide.

Example of forex position trading for beginners

Let's say that you want to open a long position on the GBP/USD currency pair and it is being quoted at 1.19345 / 1.19360.

You want to buy into a trade worth £10,000. If GBP/USD has a margin rate of 3.33% , your margin required to enter the trade would be £397.47 – 3.33% x (10,000 x 1.19360).

Events such as the pound's notorious slump amid the September 2022 mini-budget come and go, but you keep your trade open. In six months, the pair's price has risen to 1.21045 / 1.21060, so you close the trade at the sell price of 1.21045.

The market has moved a substantial 1,685 points (1.21045 to 1.19360) in your favour over that time.

Your profit would be £168.50 – (£10,000 x 1.21045) - (£10,000 x 1.19360).