What is Open/Close?
In the context of cryptocurrency, "open" and "close" typically refer to the opening and closing of a trading position on a cryptocurrency exchange. An "open" position is one that is actively being traded, meaning that the trader has either bought or sold a certain amount of a particular cryptocurrency and has not yet closed out that position.
The process of closing an "open" position involves selling or buying an equivalent amount of the same cryptocurrency to offset the original trade, resulting in a settled and no longer active trade. For example, if a trader buys 1 Bitcoin (BTC), this would be considered an "open" position. If the trader later sells 1 Bitcoin, this would be considered a "closed" position, as the original trade has been settled and the trader is no longer exposed to price fluctuations in that cryptocurrency. Closing a position is typically done to lock in profits or minimize losses, depending on the market conditions at the time.
Simplified Example
Here is a simplified example of open and close in the context of cryptocurrency:
Open: John wants to invest in Bitcoin, so he buys 1 Bitcoin (BTC) on a cryptocurrency exchange for $50,000.
Close: A few months later, the price of Bitcoin has risen to $60,000. John decides to sell his 1 Bitcoin for a profit of $10,000. This closes his open position and settles the trade.
In this example, John opened a position by buying 1 Bitcoin and later closed the position by selling the same amount of Bitcoin. The open position allowed John to participate in the price movement of Bitcoin and the close position allowed him to lock in a profit.
History of the Term "Open/Close"
In the early 2010s, the term "open/close" started to find usage in the realm of cryptocurrencies as the market for digital assets began to take shape. Traders and analysts adopted these terms to denote the initial and final prices of crypto assets within designated trading periods, commonly on a daily or weekly basis. Subsequently, between 2013 and 2017, the prevalence of the term increased significantly as cryptocurrency trading activity surged. Technical indicators, including candlesticks and Bollinger Bands, gained widespread popularity among traders seeking to analyze market trends and pinpoint potential trading opportunities by incorporating open and close prices into their strategies.
Examples
Trading cryptocurrencies on an exchange, such as opening a long position by buying Bitcoin (BTC) and later closing the position by selling the same amount of BTC.
Participating in a futures market for a cryptocurrency, such as opening a short position by selling a futures contract for BTC and later closing the position by buying the same amount of the futures contract.
Trading options on a cryptocurrency, such as opening a call option by paying a premium for the right to buy a certain amount of BTC at a specific price, and later closing the position by either exercising the option or letting it expire.