Position Trading

Definition

The investing term position trading refers to individuals that buy securities with the intention of holding onto them for an extended period of time.  A position trader may hold onto a stock for months or even years, and is primarily concerned with the long-term prospects of their investments.

Explanation

Also referred to as a buy and hold strategy, position traders are not concerned with short-term trends that affect the value of their investments. These traders hope to realize gains over relatively long timeframes.  The vast majority of investors would be considered position traders.

Some position traders will examine earnings growth projections, profitability and leverage ratios when selecting securities, while others will look for patterns in charts over long timeframes.  This second approach is known as trend trading.

Overall, the technique is a very efficient way to invest, since trading commissions and fees are minimized due to relatively low investment churn.  It's also a less risky approach when compared to those techniques that rely on "timing the market" such as day trading.

Unfortunately, a position trader can also become too complacent with their investments, and ignore clear signals that it's time to sell a security.

Related Terms

floor broker, stock exchange specialist, scalping, day trading, swing trading, over-the-counter market, program trading, index arbitrage, portfolio insurance, American option, European option, Advanced Computerized Execution System, advance decline line