Short selling stocks
- Thread starter IDHunt'em
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JoseCuervo
New member
Shorting is an important tool in your investing toolbox. I have known some great investors that shorted for huge profits. I don't think I have ever had more than about 5% of my portfolio short, but I have probably done as well on the Short side on "short term" investments as I have done on the Long side. I did real shorting Sirius Radio a few years ago.
The mechanics are pretty simple. You sell the stock (and your broker goes and borrows the shares so he can make delivery to the opposite party in the transaction), and then your account will show 1000 Shares Short of XYZ company. You will get a Credit in your account for the proceeds of the sale. Your broker may or may not charge you interest on the value of the shares he had to borrow to deliver to the opposing firm.
While you are Short, you will be responsible for any dividends that the firm pays, so your account will get debited for the value of the dividend.
When you finally close out the position, you will buy the shares back, so your purchase will debit your account for the value of the shares you are closing out.
It does not really matter the order of a transaction, you Buy then Sell, or you Sell then Buy. The math comes out the same.
Items to consider. The Market has gone up as the country has developed and as industry developed. Usually 10-12% per year. So, there is a "built-in bias" against shorting as the market tends to rise the 10-12%, so you have to overcome that bias. I have never shorted the Market, but I have bought Puts on the Indexes in order to profit from downturn.
Usually, shorting a specific stock makes more sense than shorting the Market. Sometimes you can do ok shorting companies in industries that are getting whacked, ie... all the Homebuilders.... And sometimes you can short the "next" industry, if all the Homebuilders are in trouble, then so will be the Building Materials companies.....
Keep in mind, in every transaction there is a Buyer and a Seller, so if you think something should be Sold/Shorted there is somebody who believes it is a good buy. If you think something should be bought, there is an opposing party that thinks is should be Sold/Shorted.
What do you mean by this? My understanding of the concept was that you borrow the shares from your broker, sell them, then buy them back at a lower price and return them to your broker - Sell than Buy, correct? What would Buy then Sell be?
Also, can you do this through an online broker or would I be better off using a live broker?
JoseCuervo
New member
Just pointing out that you can make money EITHER direction a company/market goes. Just depends which transaction you do first, but you always want to Sell High, and Buy Low.
I am guessing all the people at the online brokers are "live"......
If you mean a discount broker (Schwab, Ameritrade, etc...) vs a Full Commission Broker (Merril Lynch, Edward Jones, etc...) ALWAYS use a discount broker for ALL transactions. There is no reason to pay full price for somebody to execute a trade that you researched and figured out yourself.
Beacuse, when you call the Full Price guy to short something, he will waste your time asking lots of questions and trying to sell you other stuff that was put on their "list" that morning that generates him "points" toward next springs trip to Hawaii for top performing brokers. He also won't know if the stock can be shorted, he will likely just slow down your transaction and skim a couple of $$$$100's off your transaction in order to pay for his Season Tickets at the Football Stadium.
Here is MLDirect (a weak attempt at Merril's to provide "online" services). Look at the cost that Merril gets compared to the $7-10 you can get everywhere else.
Not sure how many shares you are trading, but from the Firm's perspective, executing a trade for 1 share has just about exactly the same cost as executing a trade for 10,000 shares. Why Merril would want to charge more is funny.
I am guessing all the people at the online brokers are "live"......
If you mean a discount broker (Schwab, Ameritrade, etc...) vs a Full Commission Broker (Merril Lynch, Edward Jones, etc...) ALWAYS use a discount broker for ALL transactions. There is no reason to pay full price for somebody to execute a trade that you researched and figured out yourself.
Beacuse, when you call the Full Price guy to short something, he will waste your time asking lots of questions and trying to sell you other stuff that was put on their "list" that morning that generates him "points" toward next springs trip to Hawaii for top performing brokers. He also won't know if the stock can be shorted, he will likely just slow down your transaction and skim a couple of $$$$100's off your transaction in order to pay for his Season Tickets at the Football Stadium.
Here is MLDirect (a weak attempt at Merril's to provide "online" services). Look at the cost that Merril gets compared to the $7-10 you can get everywhere else.
Not sure how many shares you are trading, but from the Firm's perspective, executing a trade for 1 share has just about exactly the same cost as executing a trade for 10,000 shares. Why Merril would want to charge more is funny.
