Shorting for dummies

[Charlie Whiskey]

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.

 

[kam75]

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.

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!!

 

[notting]

Thought this might be interesting to some.

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

 

[sinner]

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.

 

[skc]

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%+

 

[Gringotts Bank]

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

 

[DJG]

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?

 

[skyQuake]

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.

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)

 

[DJG]

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



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

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

 

[Trembling Hand]

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.

 

[banco]

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.

 

[Gringotts Bank]

Thanks skyQ.

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

 

[banco]

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.

 

[Gringotts Bank]

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

Thanks,