Square definition
Square
A square position refers to when a trader’s long and short positions offset one another, such that they effectively have no open position. Square positions most often occur in forex trading when a trader has both buy and sell orders for a single currency pair, but the term applies to any market where long and short positions can be held simultaneously.
Square positions may also be called ‘flat positions’ because the two counteracting positions leave your potential gains and losses flat, regardless of what direction the market moves in.
A trader may take up a square position when they are unsure of which direction the market will move, then close one position when they become confident in the market direction. However, there are more efficient ways to hedge traders with the use of stop-loss and buy limit orders.
Squaring up vs. square positions
Square positions should not be confused with the act of ‘squaring up.’ Squaring up describes settling some or all open traders before the market closes. This action is used by many intraday traders who open and close all positions within the same trading day and ensure all trades are closed by market close.