The “close-by” feature enables traders to simultaneously close two positions on the same financial instrument that are going in opposite directions. Traders use this function to cancel two hedged orders; by doing so, traders eventually pay only for a single spread, saving the cost of the other spread. On the other hand, if two hedged orders are closed independently and two spreads are paid, the transaction cost is paid twice. In the "close by" operation, the first position is closed at the open price of the second position, and the second position at the open price of the first.

Now the million-dollar question is why traders use the "close-by" operation to close a trade.

Due to speculative elements and several global variables, forex trading always involves some risk. A variety of factors can lead to big losses, including time discrepancies, leveraged trading volatility, and political events. Forex hedging entails taking a position on a currency pair to offset potential fluctuations in another currency pair. The price fluctuations in these positions can cancel each other out while they are both open, assuming that the positions have the same size and that the price moves are inversely correlated.

Hedging typically entails taking out a second position that is likely to have a negative correlation with the primary asset being held, which means that if the price of the primary asset moves in a negative direction, the second position will move in a complementary and opposite direction, offsetting those losses.

A trade position is created when a security is bought or sold. The trade must then be closed to profit from the difference between the bid and ask prices. The second trading operation is the opposite of the first. For instance, if the initial transaction involved purchasing one lot of Gold, the position must be closed by selling one lot of the same symbol. In the client terminal, positions can be closed in a variety of ways: One position can be closed, another position can be closed by another position, and numerous positions can be closed at once.

Let’s try to better understand the open and closed positions about “close-by” operations.

In the market, trades and investor activity involve opening and closing positions. An investor's initial position on a security is called an "open position," and it can be either a long position or a short position on the asset. It needs to be closed to mitigate the possible losses. A long position will sell to close, while a short position will buy to close. Thus, closing a position entails the opposite action from that which initially created the position.

Let’s try to find how a trader can use the close-by operation in the meta trader 5 (MT5) platform

1. To make use of the close-by option, the trader must double-click on the existing order
2. Using the drop-down button, Choose the Close-By option and click to enter
3. Here, you can decide whether to close the transaction you just clicked on with an already open trade.
4. The list of all opposing positions will then appear in the window's lower portion.
5. The "Close By..." button will then become active after choosing the opposite place in the list. It enables the simultaneous closing of two positions.

Conclusion

Using the Close-by function, traders can cancel out two hedged orders to close them. This has the advantage of using only one spread to cover two orders. The transaction cost is paid twice if, on the other hand, two hedged orders are closed independently and two spreads are paid. The main reason to use close-by is to limit potential losses on an existing order in case the event swings against your expectations in the opposite direction.