Share this page:
Stay connected:
Welcome to the Citywire Money Forums, where members share investment ideas and discuss everything to do with their money.

You'll need to log in or set up an account to start new discussions or reply to existing ones. See you inside!

Notification

Icon
Error

How to short
Steve U
Posted: 13 May 2018 09:39:56(UTC)
#1

Joined: 30/08/2017(UTC)
Posts: 22

Thanks: 35 times
Was thanked: 9 time(s) in 6 post(s)
morning all,
Does anyone know if (and how) a retail investor could short stocks ?

Raj K
Posted: 13 May 2018 10:31:28(UTC)
#2

Joined: 22/04/2016(UTC)
Posts: 139

Thanks: 256 times
Was thanked: 94 time(s) in 51 post(s)
I dont know the answer to that but i also have the opinion that shorting isn't a good thing for investing. Why would someone buy a share in the hope that it falls down in order to profit from it. It goes against the spirit of investing. Investing is putting your money into a company you believe in, not into a company that you want to fail. No judgement here just my comments!
2 users thanked Raj K for this post.
Steve U on 15/05/2018(UTC), AimingforFIRE on 18/05/2018(UTC)
Apostate
Posted: 13 May 2018 10:32:53(UTC)
#3

Joined: 02/04/2018(UTC)
Posts: 53

Thanks: 10 times
Was thanked: 46 time(s) in 26 post(s)
I think you can do this on ig.com using spread betting
1 user thanked Apostate for this post.
Steve U on 15/05/2018(UTC)
Tony Peterson
Posted: 13 May 2018 12:16:10(UTC)
#4

Joined: 10/08/2009(UTC)
Posts: 1,225

Thanks: 760 times
Was thanked: 1543 time(s) in 632 post(s)
I don't think Raj has quite got the idea of short selling.

In order to short sell you have either (a) to borrow a share you don't yourself own (in shedloads) to drive the price down by the impact of the sale, then to recover the shares at a reduced price to hand back to the owner

OR (naked shorting) just selling shares that you do not own to buy back later at a reduced price.

It needs to be done in shedloads to work. It is market manipulation of the grossest kind and should be illegal and fund managers who lend stock for shorting should be prosecuted. You have to ask yourself what incentive could they possibly have?

When major short selling attacks occur, as they did with Sainsbury over the last six months, twice driving the price below 230p it provided me with a great opportunity to top up - so perhaps I shouldn't get so angry about the practice.

Worth noting - it had to be explained to US senators after the 1929 crash (there's an amusing section in Galbraith's account describing this) - Raj is in good company.
4 users thanked Tony Peterson for this post.
Tyrion Lannister on 13/05/2018(UTC), Captain Slugwash on 14/05/2018(UTC), Steve U on 15/05/2018(UTC), AimingforFIRE on 18/05/2018(UTC)
King Lodos
Posted: 13 May 2018 14:53:49(UTC)
#5

Joined: 05/01/2016(UTC)
Posts: 2,944

Thanks: 675 times
Was thanked: 4537 time(s) in 1756 post(s)
Trading platforms let you short (there'll be an option to Buy the share (bet on it going up), or Sell (bet on it going down)).

Most shorting is done with CFDs (derivatives) .. The long/short funds you can access on your fund platform most likely use derivatives (neat electronic contracts that let you go long or short on various assets).

In principle, shorting improves market efficiency .. When Bitcoin could only be "bought", it tended only to go up .. Most people buying it had a positive view on Bitcoin .. People like me, who think it's a con, had no influence on its price .. As soon as shorting became an option, the downward pressure started increasing – reflecting positive and negative views of the currency.


Any trading platform should do .. HLmarkets, IG Markets, Intertrader, etc. But my favourite is Trading212..

Warning from a trader: virtually no one makes money (overall) from their short book (all the shorts they've done) .. Since markets tend to go up, probability is working against you .. If you intend to profit from a bear market, shorting is not a great option – markets tend to be much more volatile going down, which makes it very hard to profitably ride a market down and not get shaken out or margin called .. It's usually much more preferable to profit from a bear market by going long something that tends to go up (e.g. bonds, haven currencies, gold, etc)
2 users thanked King Lodos for this post.
dd on 14/05/2018(UTC), Steve U on 15/05/2018(UTC)
Tony Peterson
Posted: 13 May 2018 15:37:30(UTC)
#6

Joined: 10/08/2009(UTC)
Posts: 1,225

Thanks: 760 times
Was thanked: 1543 time(s) in 632 post(s)
There's also spread-betting. Not something that interests me. But if you are convinced a price trajectory will be dramatically downwards and you turn out to get it right you could make a bob or two that way.
1 user thanked Tony Peterson for this post.
Steve U on 15/05/2018(UTC)
Fell Walker
Posted: 13 May 2018 15:44:08(UTC)
#7

Joined: 15/12/2017(UTC)
Posts: 56

Thanks: 93 times
Was thanked: 71 time(s) in 36 post(s)
Also losses can be high if you get it wrong and you may end up owing money. Losses can be unlimited.
2 users thanked Fell Walker for this post.
Tony Peterson on 13/05/2018(UTC), Steve U on 15/05/2018(UTC)
King Lodos
Posted: 13 May 2018 16:31:14(UTC)
#8

Joined: 05/01/2016(UTC)
Posts: 2,944

Thanks: 675 times
Was thanked: 4537 time(s) in 1756 post(s)
That's the other reason shorting is tough.

When a stock you hold goes down, it becomes a smaller part of your portfolio .. It's why index trackers are tough to beat: winners become larger positions and losers become smaller.

But when you're shorting, the more a stock rises (and loses you money), the larger the position gets – amplifying losing positions.


Although loses are technically infinite, you'll almost always be shorting via a derivative .. Which means you'll always effectively have a stop loss (the difference between the price and the 'stop' is the margin) .. So if I short a stock at 100p, and my margin is 10p, (a 10% rise and I'm out of the position), then that limits how much I can lose, but also means I only have to cover the 10p – so I'm effectively 10x leveraged .. If the position I'm shorting rises over that 10%, I can get margin called, and either get taken out of the trade automatically, or opt to pay more and cover a greater margin.

Pair trades are the probably easier way to short .. Although you can't do it with funds, if you imagine buying a fund you thought would outperform – like SMT – and taking an equal short position on the FTSE World .. Then however much SMT makes above the index is your positive return .. The advantage being that if there was a crash, and both funds went down, you wouldn't necessarily lose anything – you just make the difference

2 users thanked King Lodos for this post.
Trudy Scrumptious on 14/05/2018(UTC), Steve U on 15/05/2018(UTC)
Tony Peterson
Posted: 13 May 2018 16:50:31(UTC)
#9

Joined: 10/08/2009(UTC)
Posts: 1,225

Thanks: 760 times
Was thanked: 1543 time(s) in 632 post(s)
So, if you want to keep matters simple, and have a bit of cash doing nothing you may as well say, probability suggest that markets rise more than they fall, so instead of trying to pick losers, why not put a few grand into those stocks that have currently been the most disappointing (maxed out their loss potential) and are more likely to rise than fall.

The highest yielders amongst the FTSE100 seem to me to be in this category.
5 users thanked Tony Peterson for this post.
CUEBALL on 13/05/2018(UTC), Sara G on 13/05/2018(UTC), Dian on 13/05/2018(UTC), gillyann on 14/05/2018(UTC), Steve U on 15/05/2018(UTC)
CUEBALL
Posted: 13 May 2018 17:37:36(UTC)
#10

Joined: 06/04/2014(UTC)
Posts: 964

Thanks: 203 times
Was thanked: 394 time(s) in 255 post(s)
....or just turn the graph upside down
2 users thanked CUEBALL for this post.
Tony Peterson on 13/05/2018(UTC), Steve U on 15/05/2018(UTC)
Sara G
Posted: 13 May 2018 17:49:34(UTC)
#11

Joined: 07/05/2015(UTC)
Posts: 641

Thanks: 1180 times
Was thanked: 1200 time(s) in 440 post(s)
I'm not morally opposed to short selling - there's the argument that they are good at spotting problems ahead of the rest, and can be instrumental in exposing corporate misdeeds... I don't think private investors should attempt it though as the risks are too great.

For significant exposure to short-selling with less risk, Jupiter Absolute Return may be of interest.

Agree with Tony P that buying what's currently cheap is a better approach - and is arguably a kind of 'short' on the market consensus. In that spirit I topped up BT the other day.

Welcome back Cueball, by the way :)
3 users thanked Sara G for this post.
CUEBALL on 13/05/2018(UTC), Tony Peterson on 13/05/2018(UTC), Steve U on 15/05/2018(UTC)
Mostly Retired
Posted: 14 May 2018 04:31:20(UTC)
#12

Joined: 24/04/2012(UTC)
Posts: 23

Thanks: 20 times
Was thanked: 38 time(s) in 18 post(s)
For background and context, there is a very useful section in the FCA guidance on the subject https://www.fca.org.uk/markets/short-selling. The ESMA also has a useful section https://www.esma.europa..../trading/short-selling.

Much of this is somewhat dry regulatory stuff, but is to my mind an interesting read and highlights the complexities of shorting in a world of CDS and derivatives and also the concerns that material shorting can have the potential to massively destabilise individual shares or whole markets .

Somewhat more interesting for us as investors is the published list of short positions which I do keep an eye on as it does give an idea of some market directional trading : on the main FCA page there is a link to "Public Short Positions Disclosed to us" this opens an Excel file - and well worth the occasional look.

Shorting is merely a trading/investing strategy, but like a very large stick, it can be used for good or ill, and some aggressive very large short strategies have attempted to make the result a foregone conclusion. At that point a "trading strategy" can transform to "market manipulation".

There is of course a view that aggressive shorting by, mainly, hedge funds helped fuel the melt down in the "mess" of 2007/8 or at least massively amplified the depth of the bottom of the curve.

For the private investor a "true" short strategy can really only be achieved through spread bets or CFD trades - which are without doubt not routes for the unwary or risk averse!

3 users thanked Mostly Retired for this post.
Sara G on 14/05/2018(UTC), Tim D on 14/05/2018(UTC), Steve U on 15/05/2018(UTC)
sandid3
Posted: 14 May 2018 09:37:27(UTC)
#13

Joined: 18/02/2013(UTC)
Posts: 312

Thanks: 173 times
Was thanked: 390 time(s) in 161 post(s)
There are ETFs -

- which might be a bit safer.
1 user thanked sandid3 for this post.
Steve U on 15/05/2018(UTC)
mark spurrier
Posted: 14 May 2018 10:34:15(UTC)
#14

Joined: 17/01/2018(UTC)
Posts: 13

Was thanked: 8 time(s) in 6 post(s)

You short by selling a CFD or spread bet.

Relatively easy for PIs to do.

Contrary to some of the views above the value of the short increases as the stock price falls.

There are two things you need to consider

The upside is limited..........the value cannot fall below 0
The downside is unlimited.......there is no upper limit on the stock price


Second element is that the unwinding of short positions can be spectacular. When you close a short you need to buy in the market. On smaller stocks, there may not be enough float to allow short positions to close. There is no guarantee that the amount of stock sorted is equal to or smaller than the share capital....... ie more may have been sold than physically exist. If some good news comes out, the stock price rises and people try to but...this can cause some fairly meteoric share price increases - a "short/bear squeeze"

I can think of one stock that had a 252% of the capital short.........this is dangerous stuff if you need to close the shorts as the stock doesn't exist........
1 user thanked mark spurrier for this post.
Steve U on 15/05/2018(UTC)
King Lodos
Posted: 14 May 2018 14:31:21(UTC)
#15

Joined: 05/01/2016(UTC)
Posts: 2,944

Thanks: 675 times
Was thanked: 4537 time(s) in 1756 post(s)
mark spurrier;62279 wrote:

Contrary to some of the views above the value of the short increases as the stock price falls.


I think everyone grasps that.
1 user thanked King Lodos for this post.
Steve U on 15/05/2018(UTC)
Lawrence Ventour
Posted: 15 May 2018 00:09:56(UTC)
#16

Joined: 15/05/2017(UTC)
Posts: 4

Was thanked: 3 time(s) in 3 post(s)
All - Interesting & enlightening discussion. Thanks for those very informed insights. And including CUEBALL's - this time - 'intentional' wit and humour ('turn the chart upside down')! Notwithstanding the viewpoint that institutional shorting increases market efficiency, I still have serious doubts as to its net value contribution to the 'common good'.
1 user thanked Lawrence Ventour for this post.
Steve U on 15/05/2018(UTC)
Steve U
Posted: 15 May 2018 12:21:41(UTC)
#18

Joined: 30/08/2017(UTC)
Posts: 22

Thanks: 35 times
Was thanked: 9 time(s) in 6 post(s)
Steve U;62223 wrote:
morning all,
Does anyone know if (and how) a retail investor could short stocks ?




thank you for the great answers - the reason I asked the question was that I think the Sainsbury's/Asda merger is not a great move - contrary to what's happened to SBRY share price since.

It looks like IG index or similar is the way to go if I want to back my view.

Having just looked at it - it seems to work a little like how Betfair works when "laying" rather than "backing" - I've opened a demo account to have a play around.
Mostly Retired
Posted: 15 May 2018 14:30:37(UTC)
#19

Joined: 24/04/2012(UTC)
Posts: 23

Thanks: 20 times
Was thanked: 38 time(s) in 18 post(s)
A cautionary word from a relatively risk averse investor :)

If you do head for spread betting - pay very, very, close attention to the various types of stop loss available.

Not all stop losses are created equal and could still lose you considerable cash if you get the wrong movement too fast! (market gapping risk). Not a theoretical risk see : https://www.spreadbetmag...e-trading-guide-1000252

Personally - I would always pay the extra for the Guaranteed Stop Loss product as that gets past gap/slippage risks - but of course you are then taking the risk on the trading house you are working with.

I decided that this type of trading is more for the professional trader - and probably more for the HVT algorithmic robots!
1 user thanked Mostly Retired for this post.
King Lodos on 15/05/2018(UTC)
King Lodos
Posted: 15 May 2018 14:44:45(UTC)
#20

Joined: 05/01/2016(UTC)
Posts: 2,944

Thanks: 675 times
Was thanked: 4537 time(s) in 1756 post(s)
Mostly Retired;62349 wrote:
A cautionary word from a relatively risk averse investor :)

If you do head for spread betting - pay very, very, close attention to the various types of stop loss available.

Not all stop losses are created equal and could still lose you considerable cash if you get the wrong movement too fast! (market gapping risk). Not a theoretical risk see : https://www.spreadbetmag...e-trading-guide-1000252

Personally - I would always pay the extra for the Guaranteed Stop Loss product as that gets past gap/slippage risks - but of course you are then taking the risk on the trading house you are working with.

I decided that this type of trading is more for the professional trader - and probably more for the HVT algorithmic robots!


Absolutely ..

The problem is Guaranteed Stops are usually vastly more expensive (a much wider spread), and as trading is a zero-sum-game, where making a profit at all is difficult, I can't imagine how anyone profits with Guaranteed Stops (apart from the people providing them).

The problem with leveraged trading in general is that you need about £100,000 minimum (which is often what demo accounts give you) to have enough positions (with minimum trade sizes) to be diversified .. And that could mean £1m of market exposure

King Lodos
Posted: 15 May 2018 14:56:32(UTC)
#17

Joined: 05/01/2016(UTC)
Posts: 2,944

Thanks: 675 times
Was thanked: 4537 time(s) in 1756 post(s)
Lawrence Ventour;62320 wrote:
All - Interesting & enlightening discussion. Thanks for those very informed insights. And including CUEBALL's - this time - 'intentional' wit and humour ('turn the chart upside down')! Notwithstanding the viewpoint that institutional shorting increases market efficiency, I still have serious doubts as to its net value contribution to the 'common good'.


Bitcoin's probably a good example .. Now we can short it, the price is less likely to continue on its path of insanity, and naive investors are less likely to get sucked in or lose big .. It's been in more of a trading range since.

The problem is if you can only go long, the price of an asset is only being dictated by people who decided to invest .. You might get oil investors, IT investors, etc. clustered in their own niches, all more likely to see bad news as good.

As the point of markets is that, in trying to win, everyone contributes knowledge and information to daily asset pricing, shorting simply gives the system more control to express positive or negative views
2 Pages12Next page
+ Reply to discussion

Markets

Other markets