Understand these four concepts before trading futures: closing position, open interest, liquidation, and rollover.

Many people who just step into the futures market get confused by terms like “closing position,” “unclosed position,” “liquidation,” “rollover,” and others. As a result, they start trading cluelessly and often end up paying tuition in the market. Today, I will give you a thorough understanding to help you avoid pitfalls.

Opening and Closing Positions: The Starting and Ending Points of Trading

Opening a position means you start a trade, buying or selling a certain asset (stocks, futures, Crypto, etc.), hoping the price moves in your expected direction. But at this point, you haven’t actually made a profit or loss; you are just establishing a position.

Closing a position is the opposite — it means you end this trade, liquidating all held positions. Only when you close a position can you truly determine whether you made a profit or a loss.

For example, suppose you are bullish on Apple stock AAPL, buying 100 shares at $150. As long as you hold these 100 shares, your long position is not closed. When Apple rises to $160 and you decide to sell all, that is the real closing of the position, and your profit can be realized.

Note: Taiwan stocks implement a “T+2 settlement” system, meaning if you close a position today (sell), the actual funds will be credited two business days later. Plan your funds accordingly.

What Does Unclosed Futures Position Mean: The Key Indicator to Understand Market Depth

Many people are confused about “futures unclosed position.” Simply put, unclosed volume refers to the total number of contracts in the futures or options market that have not yet been closed or settled. It is not trading volume but open interest, an important indicator of market momentum.

What does an increase in unclosed volume imply?

New funds keep entering the market, and the current trend may continue. For example, during the rise of the Taiwan index futures, if unclosed volume increases simultaneously, it indicates strong bullish momentum with continuous new buying. In this case, the upward trend is relatively stable.

What does a decrease in unclosed volume imply?

Investors are closing their positions, and the current trend may be nearing its end. The market might reverse or enter consolidation, signaling potential risk.

Warning: If the Taiwan index futures price is rising but unclosed volume is decreasing, be cautious. This usually indicates the rally is mainly driven by short covering (buying back short positions to stop losses) rather than new long positions. Such upward moves are unstable and could reverse at any time.

Liquidation: The Biggest Nightmare in Leverage Trading

Liquidation is especially common in futures and leveraged trading, because you only need to put up a small margin to control a large contract. It seems to amplify gains, but it also magnifies the risk of losses.

Take the Mini Taiwan Futures as an example, with an initial margin of about NT$46,000. When the market moves against you and your account starts losing, and the “maintenance margin” drops below NT$35,000, the broker will issue a margin call.

If you fail to top up the margin within the deadline, the broker will forcibly close all your positions at market price — this is liquidation. Not only do you lose your principal, but you may also owe a large debt.

How to avoid liquidation?

• Do not operate at full capacity; keep your positions within 30% of your total funds
• Set strict stop-loss points, usually at 3%-5% loss from entry price
• Use lower leverage; better to earn less and survive longer
• Always monitor your account margin balance and top up in advance during high market volatility

Many people are wiped out by a single liquidation, so risk management must always come first.

Rollover: Advanced Play in Futures Trading

Rollover only exists in futures trading, meaning you convert your near-month contract into a longer-term (far-month) contract.

For example, you buy a December gold futures contract, bullish on gold, but find that demand in December is weak and prices may fall. You can close the December contract and open a January contract, extending your trading horizon and waiting for a better opportunity.

Why rollover? Because futures contracts have fixed expiration dates (Taiwan index futures expire on the third Wednesday of each month). If you are bullish on the long-term trend and do not want to exit, you must rollover; otherwise, the contract will automatically settle at expiration.

Cost considerations in rollover:

• Contango: When the far-month contract price > near-month, rolling over involves selling low and buying high, incurring costs.
• Backwardation: When the far-month contract price < near-month, rolling over may generate gains.

Many Taiwan brokers offer “automatic rollover” services, but you should understand the rules and fees beforehand. Manual rollover allows you to choose the best timing and price.

When to Open and Close Positions?

This is the most challenging decision in practice.

Correct Timing to Open a Position

Before opening a position, ask yourself three questions:

1. Is the overall market trend correct?

Prioritize checking if the major indices are above key moving averages (monthly, quarterly) or in an upward structure (higher highs and higher lows). When the market is bullish, opening positions has higher profit potential; during a bearish trend, minimize activity and reduce position size.

2. Is the individual stock fundamentally sound?

Focus on profit growth, revenue increase, industry support (like semiconductors, green energy themes), and avoid stocks with declining earnings or financial issues. Solid fundamentals reduce the risk of sudden adverse moves after opening.

3. Are technical signals clear enough?

Prefer “breakout” signals: when the stock price breaks through consolidation ranges or previous highs with increased volume, indicating buying interest. Avoid “unconfirmed reversals” with shrinking volume, which often signal downward risk and should be avoided.

Key point: Before opening, set a stop-loss (3%-5% below the purchase price), confirm your acceptable loss range, and decide your position size accordingly. Never go all-in; risk control is the first lesson.

Correct Timing to Close a Position

The golden rule for closing is: Follow the trend, use stop-loss to protect capital, and take profits without greed.

Close when your target is reached:

Set profit targets when entering (e.g., 10% gain or hitting a moving average). Once achieved, gradually take profits. If the market is particularly strong, you can leave some positions to ride the wave, but always adjust your take-profit points. If the price falls below the 5-day moving average, consider closing all.

Trigger your stop-loss immediately:

Whether it’s a “fixed point stop-loss” (cut loss at 5%) or a “technical stop-loss” (break below support levels at entry), once triggered, execute decisively. This is often called “stop-loss is the basic credit of investing” among Taiwanese investors. Larger losses are the biggest trap.

When the fundamentals deteriorate:

If a stock shows poor earnings, major negative news (like high pledge ratios or policy shifts), even if not at your stop-loss level, you should prioritize exiting to prevent further decline.

When technical reversal signals appear:

Long black candlesticks, breaking important moving averages (20-day, 60-day), volume spikes, or divergence indicators (price making new highs but RSI not following) are warning signs to close.

Conclusion: The biggest enemies in trading are greed and hesitation. Predefine rules and strictly follow them to survive long in the stock and futures markets. Mastering the timing of closing positions is often more important than opening them.