# Shorting for dummies



## Charlie Whiskey (20 July 2009)

Just want to gather some opinions here on what's the preferred way to short a stock given that it can be done these days with either vanilla short or using CFDs.

I'm not really interested in leverage so if I go down the CFD route I'll keep the equivalent amont of cash on hand. My current understanding is as follow, please pick it apart:

1) CFD short pays you interest while you pay interest to borrow stock for a vanilla short.

2) You're liable for dividends with both methods, not sure what happens with other events like stock splits and such.

3) ASX CFDs aren't very liquid with low volume; not sure about OTC CFDs or vanilla short. This is a rather important matter.


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## kam75 (21 July 2009)

Charlie Whiskey said:


> Just want to gather some opinions here on what's the preferred way to short a stock given that it can be done these days with either vanilla short or using CFDs.
> 
> I'm not really interested in leverage so if I go down the CFD route I'll keep the equivalent amont of cash on hand. My current understanding is as follow, please pick it apart:
> 
> ...




CFD's are the easiest.  Been shorting US stocks since 2006 with them and its been good fun most of the time.  But would not bother doing it over most of the Aussie stocks.  Far better liquidity and tigher spreads in the US!!


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## notting (21 January 2013)

Thought this might be interesting to some.

http://www.theage.com.au/business/intelligent-investor/lessons-from-short-seller-jim-chanos-20130121-2d2pk.html


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## sinner (21 January 2013)

Charlie Whiskey said:


> 1) CFD short pays you interest while you pay interest to borrow stock for a vanilla short.




No. 

A short comprises a: borrow shares, a sale of the shares and an obligation to pay ancillary costs in the meantime (dividends). What you do with the cash you receive from the sale of the shares can be deposit or invested in a money fund to pay you interest. 

A CFD short is simply a synthetic version with leverage attached. The interest it "pays" you is simply an implicit deposit due to that leverage. 

It's less flexible since you can only invest the dollars from your sale into cash. I could for example, with a vanilla short, sell some borrowed shares in HP, and invest the cash in 10Y treasuries or AAA corp bonds, instead of cash.



> 3) ASX CFDs aren't very liquid with low volume; not sure about OTC CFDs or vanilla short. This is a rather important matter.




OTC CFDs will make you a market in spite of poor liquidity, but it's your brokers perogative to choose to make that market or not. You can get limit moves in OTC CFDS too.

I would not touch ASX listed CFDs with a fifty foot pole.


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## skc (21 January 2013)

sinner said:


> No.
> 
> A short comprises a: borrow shares, a sale of the shares and an obligation to pay ancillary costs in the meantime (dividends). What you do with the cash you receive from the sale of the shares can be deposit or invested in a money fund to pay you interest.




With some stocks there are meaningful borrowing costs. I think LYC and JBH are some of the most expensive stocks to short.... like 5%+


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## Gringotts Bank (24 May 2013)

What's everyone's feeling about DMA CFDs for shorting ASX stocks?


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## DJG (24 May 2013)

What're the main con's of shorting Aussie stocks? 
Besides tighter spread and more liquidity, what's the advantages of US CFD's over ASX?


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## skyQuake (24 May 2013)

Gringotts Bank said:


> What's everyone's feeling about DMA CFDs for shorting ASX stocks?




Personally I like them, as long as the provider isnt too dodgy. Main thing is the ease. No need to locate borrows etc. 



DJG said:


> What're the main con's of shorting Aussie stocks?
> Besides tighter spread and more liquidity, what's the advantages of US CFD's over ASX?




None. US stocks have no CFDs.  (CFDs illegal in US).
However providers can still have CFDs on US indices (offered to non-US residents)


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## DJG (24 May 2013)

skyQuake said:


> Personally I like them, as long as the provider isnt too dodgy. Main thing is the ease. No need to locate borrows etc.
> 
> 
> 
> ...



Ah yeah, forgot about that.

Which CFD providers do most people here use?
Can you change your leverage 'on the fly' ie, each trade you can easily move a 'slider' or key in the amount of leverage needed rather than contacting the provider themselves through email etc


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## Trembling Hand (24 May 2013)

DJG said:


> Can you change your leverage 'on the fly' ie, each trade you can easily move a 'slider' or key in the amount of leverage needed rather than contacting the provider themselves through email etc




That is totally un-necessaries if you are using correct position sizing.


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## banco (24 May 2013)

Gringotts Bank said:


> What's everyone's feeling about DMA CFDs for shorting ASX stocks?




Usually you can't go short the shares you really want to short with DMA CFDs.  Even in a non-volative, uptrend the number of asx stocks you can short is fairly limited and if things get volatile and/or we go into a downtrend the list will get shorter still.


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## Gringotts Bank (24 May 2013)

Thanks skyQ.

Banco, could you short the banks this week?  IIN?  MTU? FLT?


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## banco (24 May 2013)

Gringotts Bank said:


> Thanks skyQ.
> 
> Banco, could you short the banks this week?  IIN?  MTU? FLT?




Just checked big 4, IIN and FLT were shortable this week on ig.


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## Gringotts Bank (24 May 2013)

banco said:


> Just checked big 4, IIN and FLT were shortable this week on ig.




Thanks,


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