Should Investors be Allowed to Short Shares?
|
|
|
Short selling, a help or a hindrance? I am not talking about individual traders who enjoy the ability to short sell shares, I am referring to the existing shareholder. Whilst existing holders may not want anyone shorting their shares on a certain level, if the shares are shorted, and the shareholder has done their homework, then they should know when the shares have become good value and can buy more accordingly. Of course it is annoying when you want to sell the shares yourself and others are already forcing the price down.
It is interesting to see that the FSA are still hunting for someone to blame over the HBOS debacle. Perhaps they have not looked at the share price since the fateful 19 March. On that day the stock hit a low of around 400p but then a huge swathe of investors, small and large, bought in on the news that the Board was insisting that they had no problems. Even the Bank of England and the Financial Services Authority popped up to lend support. The price then rallied to 615p. Now, though, we know better. For the last 3 weeks or so that stock has been stuck in a 260p to 280p trading range. That is more than 55% down. Imagine if you were the trader buying at 615p. So who is the enemy of the investor, is it the short seller who in this case gave a very good early warning to anyone holding the stock or is the blame better attributed elsewhere.
Trying to force a share price lower via a bear attack can be a very dangerous activity for the participants as they can easily get caught the wrong way round. A badly conceived strategy can lead to a concerted move by Market Makers or a Stock Lending moratorium by major holders which can easily lead to a spike higher which forces the shorter to take a major hit.
Sudden takeover rumour also causes havoc for shorters...
Advert
Financial Spreads
Spread Betting - No Fees, No Commissions, Free Charts and Live Prices.
Spread Bet on Indices, Forex, Commodities, Shares and more. For details see Financial Spreads.
|
Looking at the Alliance and Leicester / Satander deal there has been a slightly different reaction. No one felt sorry for traders shorting via borrowing stock, placing CFDs, spread betting or otherwise. There was a lesson for everyone on the Friday that the possibility of a deal was announced. Some £150m was probably lost in just a few minutes by funds betting on continued weaknes. Alliance and Leicester shares were one of the most heavily borrowed stocks on the block. The price opened some 40% higher from the close on the Friday and traders would not have had a chance to get out of their positions. The shares rallied to well above the Santander offer. Anyone shorting was forced to cover their position at any price.
Readers should always remember that anyone can take advantage of being short via a huge array of instruments. Buying Put options, Selling Calls, selling stock and borrowing, Selling CFDs or, most simple of all, just selling a market via Spread Betting through companies like World Spreads or Spreadex. It is not just the larger funds who can take advantage of an inflated share price.
Whilst it can be a profitable form of speculation in today’s bear market, selling a share or commodity does have its risks. Just like buying shares and commodities have their risks.
"Should Investors be Allowed to Short Shares?" last update by RThomas, 22-Sep-2008
Warning: Financial spread betting carries a high level of risk. You can lose more than your initial investment or stake. Financial spread betting may not be suitable for all investors. Only trade with money that you can afford to lose. Make sure you fully understand the risk involved. If necessary, seek independent financial advice.
Similar articles:
Spread Betting on Shares - last update: 10-Feb-2012
Spread Betting on Shares - which spread betting companies offer spread betting on shares, live shares spread betting prices and shares charts, plus how to spread bet on shares and . . . read more - Spread Betting on Shares.
Financial Spreads Still Trading Whilst Trading is Suspended at the LSE - last update: 25-Feb-2011
With trading at the LSE still suspended a number of spread betting companies like Financial Spreads are still offering trading on the UK markets. Financial Spreads are also offering . . . read more - Financial Spreads Still Trading Whilst Trading is Suspended at the LSE.
Spread Bets and Factors That Can Affect Shares - last update: 17-Feb-2010
The essential underlying feature of a stock exchange is that there is generally no fixed price for any stock. A company's shares are valued by the sum of trading actions that constitute its worth over a . . . read more - Spread Bets and Factors That Can Affect Shares.
Spread Betting, Shares and Dividends - last update: 16-Feb-2010
From a company's point of view, one of the main benefits of having its shares traded on a stock exchange is that it can help to raise capital. Private companies often enter the stock market in order to . . . read more - Spread Betting, Shares and Dividends.
Oil Spreads - last update: 01-Feb-2010
Oil Spreads >> Despite the oil market being at a recent high, at the moment crude oil continues to be a dangerous market to bet against. There is room to both the upside and also the downside and the markets are very volatile at the moment. This is particularly true around the weekly oil inventory numbers . . . read more - Oil Spreads.
Spread Betting and Tax Free Trading - last update: 14-Jan-2010
Spread Betting and Tax Free Trading >> Diversification of assets, tax efficiency and opportunities in volatile markets are all key areas for many investors. Most of us could benefit from a little more research and . . . read more - Spread Betting and Tax Free Trading.
Trading the FX, Shares and Commodities Markets - last update: 14-Jan-2010
Trading the FX, Shares and Commodities Markets >> As the major economies start to stabilise and the risk of a depression fades into the distance many are reflecting on a few important points. Firstly, how did it . . . read more - Trading the FX, Shares and Commodities Markets.
Trading the Financial Markets after a Recession - last update: 12-Jan-2010
Trading the Financial Markets after a Recession >> So it looks like we have avoided a 1930's style depression however the current forecasts still suggest slow growth and a difficult time ahead. So what should you do in a difficult . . . read more - Trading the Financial Markets after a Recession.
Spread Betting Advantages - last update: 12-Jan-2010
Spread Betting Advantages >> Spread trading offers some interesting features and is worth considering as part of your investment strategy. There are many benefits. For example, spread betting profits do not incur . . . read more - Spread Betting Advantages.
Balancing a Share Portfolio for a Recession - last update: 24-Sep-2009
Of course, in reality, financial spread betting is one the few industries that is thriving in the current market conditions. There may be a temporary ban on betting on Financial Stocks to go down but you can still bet on thousands of . . . read more - Balancing a Share Portfolio for a Recession.
Short Selling Ban Lifted - last update: 16-Jan-2009
The short selling ban has been lifted. Genuine long-term investors should have no fear over short selling as they are supposed to be in the game for an extended term and are buying on yield, prospects, growth etc. Why worry if investors are spread betting on a market to go down? The fact that the stock has fallen only means . . . read more - Short Selling Ban Lifted.
Spread Betting on Construction Sector Shares - last update: 03-Nov-2008
Building Sector Shares >> Back in the summer Taylor Wimpey's inability to get a fund raiser off the ground really hit the market. At that point we had become used to shareholders routinely stumping up the cash for . . . read more - Spread Betting on Construction Sector Shares.
Shorting Leveraged Companies and the Economy - last update: 28-Oct-2008
Shorting Leveraged Companies and the Economy >> There is now some in-depth research going on with analysts looking for stocks with higher than normal borrowing requirements. The 'dodgy' gearing up of balance sheets over the past decade may . . . read more - Shorting Leveraged Companies and the Economy.
Banking and the UK Economy - last update: 20-Oct-2008
Banking and the UK Economy >> Irish banks which were virtually the first recipients of State support are now pretty much at their lowest levels. They are even under the prices that triggered the intervention in the first place. With no shorting of financial shares via . . . read more - Banking and the UK Economy.
Where to Invest During a Recession - last update: 01-Dec-2008
Where to Invest During a Recession >> With time to do nothing it seems that a large enough percentage of the population reverts back to the old vices of drink, gambling and . . . read more - Where to Invest During a Recession.
Should Investors be Allowed to Short Shares? - last update: 22-Sep-2008
Should Investors be Allowed to Short Shares? >> Looking at the Alliance and Leicester / Satander deal there has been a slightly different reaction. No one felt sorry for traders shorting via borrowing stock, placing CFDs, spread betting or otherwise. There was a lesson for everyone on the Friday that the possibility of a deal was announced. Some £150m was probably lost in just a few minutes by . . . read more - Should Investors be Allowed to Short Shares?.
The Credit Crunch and Banking Shares - last update: 19-Sep-2008
Spread Bet on Banks >> What should we do after the Lehmans crash? The FTSE 100 has already broken the 5000 support level a number of times. According to Simon Denom of Financial Spreads, 'Investors will be hoping that the bounce from this level will support the view that . . . read more - The Credit Crunch and Banking Shares.
Spread Betting on Banks - last update: 19-Sep-2008
Spread Betting on Banks >> If banks continue to maintain or even raise their already high dividends is that a 'weak signal'? The banks have sources of income other than sub-prime mortgages and, whilst growth may be difficult to come by for the next year or so, the other areas are . . . read more - Spread Betting on Banks.
|
|
|
Free Financial Email: Latest Spread Betting Offers and where to find narrow spreads.
Click here to sign up.
|
|
