# How do I "short" a stock?



## stockGURU (30 July 2004)

I know that if you think a stock's price is going to decline you should "short" it.

I know what that basically means but how do you actually go about doing it?

Can someone who does this please explain the process to me?

Thanks!


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## GreatPig (30 July 2004)

I'm not certain, but I think you have to buy put options.

GP


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## stefan (30 July 2004)

That depends on what market. On the NYSE NASDAQ, you just put in a sell order for a stock you don't really own. On the Australian market there is no such thing as going short on a stock. The only way to do it is by buying an uncovered put/call option. Now this is still not exactly the same as going short. 

On the american market you sell shares in a stock that you don't really own. Once the price has gone down enough, you buy the stock (cover your short position) and the price difference will be your profit. The risk is that by selling a stock you don't own, you would have to find an owner who's willing to "lend" you those shares. Normally this would be your broker. (Which means you can't really short any title. Every broker has a list of stocks you can short and they change daily.) The risk is very much on your side. Should the broker decide that he want's to close the position, then he will do so without informing you. You will only find that your short position has been closed. You therefore run the risk that your position can be closed at any time without you having any control about it. This is not so much a problem if the price really went down after your bought. But if it went up instead, then you may end up making a loss without having any control.

So going short is much more risky. If you own a stock, the risk is that it will plunge to 0 and you end up losing your investment. If you are short on a stock and it runs away, then potentially your loss is unlimited. It is therefore a must to keep a very close eye on any short position you have.

By buying options, things get more complicated and certainly MUCH more risky. To explain this in details would be too much to ask for. In any case you should know a lot about options before you even consider them, no matter if it's for a put or call. I suggest you do a search on google to get some background information regarding options.


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## wayneL (30 July 2004)

> On the Australian market there is no such thing as going short on a stock. The only way to do it is by buying an uncovered put/call option. Now this is still not exactly the same as going short.




This is not accurate.

You can short sell Aussie FPO's. You just need a broker willing to facilitate it. Tricom do it. As did Bell Potter( don't know whether they still do as Bell Securities)

It is however much more expensive than in the US.

You can of course do it via CFD's also. (But I personally don't like these)

The risks Stefan mentions are technically correct, but in reality it will depend on your trading style whether these risks are real. 

Cheers


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## stefan (30 July 2004)

Wayne,
I stand corrected. So you may be able to short some FPOs. In fact you can get the list of stocks that are allowed to be shorted here:

http://www.asx.com.au/data/shortsell.txt

It does however still depend on your broker if you can short one that's on the list, as Wayne pointed out correctly. I've never heard of a broker who does, but apparently there are a few. However, keep in mind that you need to close your short position within 3 days in almost any case. That makes it all the more riskier.


Hapy trading


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## wayneL (30 July 2004)

> you need to close your short position within 3 days in almost any case




This is not mandantory, and again it depends on the broker. 

When I was with Bell Potter I held several shorts for several months...I even shorted some that weren't even on the list 8)... so long as they had sufficient stock to lend, it was no problem.

One point to remember though. If there is a dividend paid during the time you hold the short position, you must pay the dividend to the stock owner, and brokerage is expensive as you must do it through a full service broker.

These days, the best way to short aussie stocks is via CFD's (not withstanding my reservations about them)

IT's a different story in the US as Stefan pointed out...just press the sell button and "SHIZAM" you're short!...providing they have the stock to lend. Once or twice my order has been rejected due to insufficient stock to lend.


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## stockGURU (1 August 2004)

Thank you for all the replies! I really do appreciate it!

So shorting a stock involves the buying of put options. Okay. As I am unable to do this with etrade, can someone tell me where I can do this?


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## stefan (1 August 2004)

Stockguru,

You don't have to buy options to short a stock as you can see in wayne's posting.



> You can short sell Aussie FPO's. You just need a broker willing to facilitate it. Tricom do it. As did Bell Potter( don't know whether they still do as Bell Securities)
> 
> It is however much more expensive than in the US.




Over all I'd say it is too expensive. But you should read the following page on the tricom website. (Tricom was pointed out by Wayne in an earlier post).

http://www.tricom.com.au/equities/index.htm

Happy trading

Stefan


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## richbb (2 August 2004)

I do short using CFD(Contract for Difference) from CMC-www.cmcplc.com.au

It's the best way to do short trading, though I haven't done for long as market has been bullish.

safe trading

richbb


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