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To close a position such that the profit or loss from an investment is realized. For example, if an investor buys a stock at $5 per share and the price goes to $10, the investor has a paper profit of $5 per share. However, if the investor waits to sell the stock until the price drops to $8, the locked in profit is only $3 per share. Investors often wait before locking in substantial profits or losses, as locking in a profit may result in higher taxation, while locking in a loss removes the possibility that the investment can be recovered.
To guarantee, as a return or cost. For example, an investor who purchases a noncallable 10% coupon Treasury bond at par locks in a return of 10% annually until the bond matures. The Treasury also locks in a 10% cost for the funds raised through the sale of this bond issue.