What is Force Open in Trading?

Force open is a specialized function available on IG’s trading platform, designed to provide traders with greater flexibility and control over their positions. By using the force open feature, traders can open a new position in the opposite direction to an existing bet on the same market. This results in having both long (buy) and short (sell) positions on the same asset simultaneously.

For example, if you already have a long position on a stock and predict a short-term decline in its price, you can use the force open function to open a short position without closing your initial long position. This enables you to manage your risks more effectively and take advantage of market fluctuations.

It is important not to confuse the force open function with a forced close. A forced close occurs when a position is automatically closed without any action by the trader, usually due to insufficient margin or other risk management protocols set by the trading platform.

How Does Force Open Compare to Net Off?

Understanding the difference between force open and net off is crucial for effective trading and risk management. Force open allows traders to maintain their exposure to a market while opening a new position in the same market. This can be particularly useful for hedging strategies, where the goal is to mitigate potential losses by taking offsetting positions.

On most trading platforms, without the force open function, positions are typically netted off. In a netted off trade, an existing position would be automatically closed if the new position would cancel it out. For example, if you open a long position after already having a short position of the same value, the platform would close the initial short position, resulting in no open positions on that asset.

However, if you attach a stop or a limit to your trades, the platform will keep both positions open, allowing for more strategic management of trades. Using the force open function is an alternative approach to achieve similar results without having to rely on stops or limits.

It’s also worth noting that placing two trades of the same value using the force open function will create a net exposure of zero – essentially the same as having no open positions. Nevertheless, traders would still incur any applicable overnight funding charges or spreads, which should be considered when using the force open feature.

What are Some Examples of Using Force Open?

To illustrate the practical application of the force open function, let’s consider a scenario involving a fictional company, Company X. Suppose you have a short position on 100 shares of Company X, anticipating a decline in its stock price. However, you come across new information suggesting that the stock is likely to experience a short-term rise.

In this situation, you might decide to open a buy position on 100 shares of Company X to minimize potential losses from your initial short position. Normally, IG’s platform would net off the two positions, closing your initial short position (unless you have a stop or limit attached). However, by checking the force open box, you can ensure that both orders are executed, allowing you to hold both long and short positions simultaneously.

This strategy can be particularly beneficial in volatile markets, where prices can fluctuate rapidly. By using the force open function, traders can hedge their positions and manage their risks more effectively, without being forced to close their existing trades.

Why Should New Traders Consider Using Force Open?

For new traders, understanding and utilizing the force open function can be a valuable addition to their trading toolkit. Here are a few reasons why:

• Risk Management: By holding both long and short positions on the same asset, traders can hedge their positions and reduce potential losses from adverse market movements.
• Flexibility: The force open function provides greater flexibility in managing trades, allowing traders to respond to changing market conditions without being forced to close existing positions.
• Strategic Trading: Traders can implement more sophisticated trading strategies, such as pairs trading or market-neutral strategies, by taking advantage of the force open feature.

However, it’s important for new traders to be aware of the potential costs associated with using the force open function, such as overnight funding charges and spreads. It’s also essential to have a clear understanding of the market dynamics and the specific asset being traded to make informed decisions.

How Can You Start Using Force Open on IG’s Trading Platform?

If you’re interested in using the force open function on IG’s trading platform, here are the steps to get started:

1. Open an Account: If you don’t already have an account with IG, you’ll need to sign up and complete the registration process.
2. Fund Your Account: Deposit the necessary funds into your trading account to ensure you have sufficient margin for trading.
3. Select an Asset: Choose the asset you wish to trade and analyze the market conditions to determine your trading strategy.
4. Place Your Initial Trade: Open your initial position (long or short) based on your market analysis.
5. Use the Force Open Function: When placing a new trade in the opposite direction, check the force open box to ensure both positions remain open.

By following these steps, you can start using the force open function to enhance your trading strategies and manage your risks more effectively.

Conclusion

The force open function is a powerful tool for traders, offering greater flexibility and control over their positions. By understanding how to use this feature effectively, traders can hedge their positions, manage risks, and implement more sophisticated trading strategies. For new traders, it’s important to thoroughly understand the potential costs and market dynamics before using the force open function. With the right approach, the force open feature can be a valuable addition to your trading toolkit, helping you navigate the complexities of the financial markets with confidence.