Tranche

A tranche is a portion of a larger position that a trader buys or sells as a separate chunk, rather than putting the whole trade on at once. The word comes from the French for "slice," and that's exactly the idea: instead of one big order, you cut the position into pieces.

In practice, a trader decides on a total position size they're willing to take, then breaks it into two, three, or more tranches, entering (or exiting) one at a time as price moves or as certain conditions are met. Each tranche is usually the same size, but it doesn't have to be. A trader might buy the first tranche now, add a second tranche if the price dips further, and a third if a specific level breaks, building the full position gradually rather than all at once.

The nuance that trips people up is that "tranche" is not a fixed unit of size, like a contract or a lot. It's a relative term describing one piece of whatever the trader's total intended size is. So if someone says "I'm in my second tranche," that tells you they're partway through building a position, but it tells you nothing about how many shares or contracts that actually is unless you know their plan. It's also used on the way out: scaling out of a winning or losing trade in tranches means selling part of the position at one price and more at another, rather than exiting everything at once.

Tranching is closely related to the ideas of scaling in and scaling out, and to averaging into a position. The main reason traders do it is to manage risk and improve their average entry or exit price, rather than betting the whole position on a single moment in the market.