Locked In

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Definition of 'Locked In'

Locked in is a term used in finance to describe a situation in which an investor is unable to sell an investment at the current market price. This can happen when an investor has purchased a security that is illiquid, meaning that it cannot be easily sold on the market. It can also happen when an investor has entered into a contract that prevents them from selling the security for a certain period of time.

There are a number of reasons why an investment might be illiquid. For example, a small company's stock may not be traded very often, making it difficult to find a buyer. Or, a bond may have a long maturity date, meaning that it will not mature for many years. In these cases, an investor may be unable to sell the investment at the current market price, even if they want to.

Another way to become locked in is to enter into a contract that prevents you from selling an investment for a certain period of time. This is often done with options contracts. For example, if you buy a call option on a stock, you have the right to buy the stock at a certain price, but you are not obligated to do so. However, if you sell a call option, you are obligated to sell the stock at the strike price, even if the stock price has fallen. This can lock you into a losing position if the stock price falls below the strike price.

Being locked in can be a very frustrating experience for investors. It can prevent them from taking advantage of market opportunities and can also lead to losses. However, it is important to remember that illiquidity and contractual obligations are a part of investing. By understanding the risks involved, investors can make informed decisions about the investments they make.

Here are some additional examples of how investors can become locked in:

* An investor who buys a stock on margin is locked in to the stock until they repay the margin loan.
* An investor who buys a futures contract is locked in to the contract until it expires.
* An investor who invests in a mutual fund that has a lock-up period is locked in to the fund for the duration of the lock-up period.

It is important to be aware of the risks of being locked in before you make any investment decisions. If you are not comfortable with the risks involved, you may want to consider investing in more liquid investments or avoiding investments that have lock-up periods.

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