# Shorting - How do you do it?



## stargazer (21 January 2008)

Hi all

Given the state of the market i thought it may be beneficial if someone that is more experienced could explain how to SHORT.

I am aware that you short when you beleive the price is going to go down.

Do you short an index or a stock

How is the transaction set up

How do you make your money in the set up.

Many new people do not know how to short and buy in long in a down trend hopiing the price will come up.

Cheers
SG


----------



## tech/a (21 January 2008)

*Re: Shorting*

Just started shorting a few weeks ago after 14 yrs of trading long.
Opened a CFD account with Pacific Trader

http://www.pacconsec.com.au/

Hows shorting work?

Basically you sell a stock which you don't own then buy it back at a lower price --- returning the stock and pocketing the difference.

There are 263 stocks available for shorting through Pacific trader.If I opened an account with Marketech as well that would add another 63 stocks Pacific Trader don't carry as short able to the list.

http://www.marketech.com.au/


----------



## Timmy (21 January 2008)

There is a reasonable explanation on the ASX website of short selling at this link.

In a nutshell you sell shares that you don't own, and buy them back later: if you buy them back at a lower price than you initially sold them at you have made a profit.  If you buy them back at higher price than you initially sold them at you have made a loss.  For practical purposes most people will use CFDs (DMA, of course) to short sell - any decent CFD provider will provide a good description of the process on their website.


----------



## Timmy (21 January 2008)

tech/a beat me to it ... see the links he has posted for info on CFD shorts.


----------



## numbercruncher (21 January 2008)

You may be interested in Put Options. They are for pussycats like myself 



> Long puts allows investors to participate in downward price moves in underlying stocks and indices just as long calls do for upward price moves. Importantly both long puts and calls provide exposure for a *limited* known outlay.
> 
> Purchasing puts without owning shares of the underlying stock is a purely directional strategy
> used for bearish speculation. The primary motivation of this investor is to realise financial reward from a decrease in price of the underlying security.
> ...




http://www.asx.com.au/investor/options/how/long_put.htm


----------



## Judd (21 January 2008)

First you get a battery.........Oh bugger, wrong short.


----------



## wayneL (21 January 2008)

Just a point. There is a bit of a difference between CFDs and shares.

To short sell shares they need to be borrowed first, as per above posts. CFDs are different; they are a derivative and you just short them. Borrowing does not come into it.</pedantic>


----------



## Timmy (21 January 2008)

wayneL said:


> There is a bit of a difference between CFDs and shares.




Yes, there are quite a few differences between CFDs and shares - I don't think any of the info provided in this thread so far is enough to help one make a categorical decision to trade one or the other - just introductory info really and a few helpful links.


----------



## stargazer (21 January 2008)

Great thanks all, clears it up.

Cheers
SG


----------



## happyjack (12 February 2008)

wayneL said:


> Just a point. There is a bit of a difference between CFDs and shares.
> 
> To short sell shares they need to be borrowed first, as per above posts. CFDs are different; they are a derivative and you just short them. Borrowing does not come into it.</pedantic>




Contracts for difference are LEVERAGED so borrowing DOES come in to it, its just that you are borrowing money not shares. </VERY pedantic> happyjack
What I forgot is there are two tpes of CFD's OTC (over the counter) and exchange cfd. Exchange are tied to the share price and go up and down with the share price OTC are the price that the market maker puts on them, which will be close but not neccessarily identical.


----------



## cuttlefish (12 February 2008)

For those that use CFD's - I've got a few questions:

How is the market made for CFD's?  
Who are the MM's and how do they operate?    '
What slippage is there between the CFD market and the real underlying market?  
How does the slippage vary with volume?
How does volume compare to the underlying market volumes?


----------



## Aviator33 (12 February 2008)

cuttlefish said:


> For those that use CFD's - I've got a few questions:
> 
> How is the market made for CFD's?
> Who are the MM's and how do they operate?    '
> ...




I'll let someone familiar with MM CFDs answer those questions in relation to MMs. As for DMAs it's pretty straight forward:



> What slippage is there between the CFD market and the real underlying market?




None. You deal directly in the underlying market



> How does the slippage vary with volume?




It doesn't - see above



> How does volume compare to the underlying market volumes?




Exactly the same, you're dealing in the actual market.

In fact, can someone please tell me why MMs even exist? Not joking, I really want to understand why someone would deal with a MM instead of a DMA?

Cheers
AV


----------



## cuttlefish (12 February 2008)

Aviator - So are you saying that with DMA if you sell via a CFD provider your order appears in the market in direct proportion to the CFD order volume and gets filled or not depending on what the underlying market does?   How does the CFD provider manage this situation for shorts?   And what timeframe can you short over?


----------



## Aviator33 (12 February 2008)

cuttlefish said:


> Aviator - So are you saying that with DMA if you sell via a CFD provider your order appears in the market in direct proportion to the CFD order volume and gets filled or not depending on what the underlying market does?




Yup, that's exactly right Cuttlefish. If you use a DMA CFD provider you deal directly in the underlying market (hence the term *D*irect *M*arket *A*ccess. Once I push the buy/sell order with my CFD provider I can see the order appear in the market in under 1/2 second. And that's not in the ASX CFD market (which at the moment is a bit of a joke IMHO) but in the actual underlying equity (share).



> How does the CFD provider manage this situation for shorts?




To be honest, I've really got no idea how they acually do it but I expect it's the same as a standard short on the equity itself (ie "borrow" the stock from another customer). Perhaps someone more knowledgeable on the inner workings can answer that?



> And what timeframe can you short over?




Anything you like, from seconds to years. However, if you hold a position overnight there will be interest charges. Good thing about shorts is that you actually *receive *the interest, not pay it. However, if a stock goes ex-dividend when you hold it short you will have to pay the dividend amount. Always a "gotcha" 

Cheers 
AV


----------



## peter2 (12 February 2008)

MM's exist because they got into the market first and have established themselves. 
MM's exist because they are so many people that don't know the difference between MM and DMA. 
MM's exist because there are plenty more people to replace those that lose their money.

MM's can provide fills when the market cannot. MM's can tell by your trading record if you are a profitable trader with good discipline. If you are a loser you will continue to get better fills with an occasional "unlucky" fill. When your trading improves and you become a much better trader you will notice that these better fills are not available and the spreads will jump around more than you had ever noticed before.

When you realise that your results are not what you expect and pause to review. Don't worry about the MM's. There are plenty of other people willing to trade with them.


----------



## cuttlefish (12 February 2008)

thanks Aviator - I didn't realise this - so even when you put a short sell on via DMA CFD provider it also appears directly in market in the sell queue?  Doesn't sound too bad if thats the case.


----------



## Aviator33 (12 February 2008)

cuttlefish said:


> thanks Aviator - I didn't realise this - so even when you put a short sell on via DMA CFD provider it also appears directly in market in the sell queue?  Doesn't sound too bad if thats the case.




No probs Cuttlefish, glad to help. And yes, the sell order appears in the queue along with everyone else just as if you already owned the stock and were trying to sell it.



			
				peter2 said:
			
		

> MM's can provide fills when the market cannot. MM's can tell by your trading record if you are a profitable trader with good discipline. If you are a loser you will continue to get better fills with an occasional "unlucky" fill. When your trading improves and you become a much better trader you will notice that these better fills are not available and the spreads will jump around more than you had ever noticed before.




My point exactly Pete. It's hard enough trying to beat the market sometimes, let alone having to beat your broker at the same time! How can you expect to "beat" another trader when they know *EXACTLY *where your stops are!!?? The horror stories I hear on here and many other forums about bad fills, no fills, stop chasing etc etc etc....??????


Cheers 
AV


----------



## Kauri (12 February 2008)

In the bad old days when CFD's when new there were a lot of horror stories.. in fact there still seem to be .. the mob I deal with have electronic ordering and my orders are activated and filled quicker than I navigate through the system with my trusty mouse.. invariably within cooee of the price I have ordered on.. sometimes slightly better, sometimes slightly worse. You can see the MM spread.. and it is your choice to accept it or not... methinks a lot of "*operaror error*"?? is conveniently placed on the MM... strangely no-one seems able to post the trade placed and trade closed emails that are sent on every trade to show the rest of the punters the tricks the MM gets up to. Like all trading, if you don't fully understand the mechanics of what you are doing there are going to be problems... of your own making usually.. 
 .... just think of the blame the MM  provider is going to cop when you had a stop for instance just under BHP(an ADR share) on 5Feb.. only to see it gap down on open on 6Feb by about $2.25.... plurry dishonest scheming MM.. apart from jumping your stop he also manipulated the BHP share price deliberately to do it..   
  Do DMA have GSL???
  Is the premium for GSL worth it??
  What does "slippage factor" mean on the MM platform??
  How much are you willing to pay to find out??
Cheers
..........Kauri


----------



## Trembling Hand (12 February 2008)

Kauri said:


> strangely no-one seems able to post the trade placed and trade closed emails that are sent on every trade to show the rest of the punters the tricks the MM gets up to.
> ..........Kauri




Yes I to would like to see a chart or something with the price manipulation so we can look at it against the market action.


----------



## peter2 (13 February 2008)

Yes, a DMA broker must borrow the shares from someone to hedge its position. The real owner of the shares can ask for them back at any time and if the broker cannot find another source, then the cfd trader's position is closed. It doesn't matter if this is inconvenient for the cfd trader and may result in a loss. This is one reason to deal with a broker with access to the most shares.

I agree. Most accusations of broker malpractice occur as a result of the trader's ignorance of the broker's terms and conditions. Losing traders don't accept responsibility for their losses. It is never their fault.


----------



## ithatheekret (13 February 2008)

I only had one problem once , it was rectified , but as you all know I'm in and out , loather paying rollovers unless my dregs are well in the money and below an old support level , I mean old support not last ...........

I had a bash at a friends CMC account was impressed ........ but ...... even got one ........... still but ............ maybe I'm too fussy , but I expect what I want ...... now . Bad habit , but it's my money they want  for that risk I must have control .

Anyone know some details on the ASX offering of CFDs , is broker participation orientated ?


----------



## sardines (13 February 2008)

well I'm one of the idiots still trading with a MM - CMC for that matter! 

I haven't really experienced problems when placing trades on the open market. I've read claims of foul - play on "CFD provider reviews" and such - while it does not appear to be a systematic issue, there are times where I have thought that some amount of stop-hunting has occured. This is probably much more of an issue for illiquid instruments. I agree that it's really too much to have to trade against the market and your broker too. Right now, I'm considering trading ASX listed CFDs.

On the plus side for a MM, they do offer more instruments and leverage compared to say Comsec's listed CFD offering. I probably don't need both, and it certainly introduces an aspect of borrowing to gamble.

Anyways, what really frustrates me is that CMC's client data feed and order processing can have a habit of stopping straight after some important news release / major market spike up/down. eg. The last Fed rate cut a few weeks back led to a data blackout for me of about 1/2 hour. Market trades straight after these events have a higher chance of not getting filled properly / requoted.

For this reason, stop losses are very important or you could end up with a huge loss. Frantically attempting to call up a dealer but receiving the "please wait, we're busy" voice messages does not help whatsoever. 

on the whole, I've lost money on CFDs so far. I've probably highlighted their disadvantages a bit more, but overall, I've found their service and platform not that bad to use.

This is not advice. Do your own research.


----------



## kerosam (21 February 2008)

*Re: Shorting - How do you do it? (For AV)*

[
Anything you like, from seconds to years. However, if you hold a position overnight there will be interest charges. Good thing about shorts is that you actually *receive *the interest, not pay it. However, if a stock goes ex-dividend when you hold it short you will have to pay the dividend amount. Always a "gotcha" 

Cheers 
AV[/QUOTE]

Hi AV,

so if I'm in a short position, when will I be liable for paying the dividends? XD date or payable date?

thanks in advance


----------



## Trembling Hand (21 February 2008)

XD date


----------



## IFocus (21 February 2008)

sardines said:


> well I'm one of the idiots still trading with a MM - CMC for that matter!




Sardines I completely agree no nastiness intended



> I haven't really experienced problems when placing trades on the On the plus side for a MM, *they do offer more instruments and leverage* compared to say Comsec's listed CFD offering. I probably don't need both, and it certainly introduces an aspect of borrowing to gamble.




Complete gimmick professionals focus on one aspect or area of trading and become experts in that area there are exceptions but at this point for you suggest just one area.



> Anyways, what really frustrates me is that CMC's client data feed and order processing can have a habit of stopping straight after some important news release / major market spike up/down. eg. The last Fed rate cut a few weeks back led to a data blackout for me of about 1/2 hour. Market trades straight after these events have a higher chance of not getting filled properly / requoted.




Funny this happen too when they 1st setup here in Oz I *used* to have an account



> For this reason, stop losses are very important or you could end up with a huge loss.




Stops are important



> Frantically attempting to call up a dealer but receiving the "please wait, we're busy" voice messages does not help whatsoever.




Your trading psychology or your trading behavior development I would suggest is being severely damaged by this situation, it did for me took ages to fix.



> on the whole, I've lost money on CFDs so far. I've probably highlighted their disadvantages a bit more, but overall, I've found their service and platform not that bad to use.




Just not good enough IMHO

There are now lots of CFD providers, I use MF Global DMA the platform is not as flash as CMC but it never fails I will repeat it never fails, the prices I see in the market are what I get filled for. I have had no issues and whats more I hear there are others who are as good and cheaper all DMA.

Sardines I am always stunned that there are MM's still around offering CFD's for the ASX market and people using them 




> This is not advice. Do your own research.





I agree with this please, please do some more research on DMA providers one idea that really appeals to me is have an IB account for going long and a CFD provider for going short.

Sorry if of topic but hope this helps no cheap shots intended.

Focus


----------

