Closing transactions are the final transactions that complete the terms of a contract. Generally, each detail of the contract must be met in order for the closing transaction to take place, and thus complete the business deal. Depending on the circumstances, a closing transaction could be a purchase or a sale. In either case, this final action on the part of the investor will bring an existing contract on a given investment to an end and clear the way for the initiation of a new contract.
In situations where the contract involves a long position, the sale of the investment would be considered the closing transaction. For circumstances that involve a short position, the closing transaction would be for a short position. With either scenario, the investor would consider the transaction to be fulfilled and complete, and would be free to address other investment options.
The importance of properly executing a closing transaction cannot be underestimated. In order for contracts to be considered completed, the final transaction must be conducted in exactly the terms outlined in the body of the contract. This means that the buyer must meet all the qualifications, payment must be received in the form specified in the contract, and that the seller delivers the shares in a timely manner. Without each point of the agreement being met in full, the closing transaction cannot take place. This will mean the contract cannot truly be considered complete.
With the execution of the closing transaction, both the buyer and the seller agree to the terms and conditions associated with the investment option. This includes the sale price, the number of units that are being traded, and the terms of payment that are agreed upon between the two parties. With the rendering of the payment, the closing transaction is considered complete and the contract is fulfilled.