Ways to Short the Market

Submitted by Sharemarket News on 9 May, 2011 - 15:54

Learn about profiting from a market drop.

You sell a stock you don't own when you "short" the market. You don't own the stock, the broker lets you borrow it. Where does the broker get the stock? The stock comes from the brokerage's own inventory or from another brokerage firm. Shorting is the opposite of a long investment. Trader X goes long when he buys stock ABC and expects the price to rise in the future. When trader X goes short, he expects a price decrease.

Usually, traders short to profit from risky investments during market fluctuations. Here are some ways to profit from a drop in the markets by shorting:

  • Index funds. Shorting index funds are riskier than shorting individual stocks; however, results would be pretty stable compared to individual stocks.
  • Options. You can trade call and put options on the Standard & Poor's ASX 200 XJO (Index Options).
  • Warrants. Trading warrants over the XJO.
  • Contract for Difference (CFDs). A CFD is an contract to exchange the difference in value of a certain share.
  • SPI (Futures). Get educated about futures before trading. You need a futures broker, and you pay higher margins with futures. Long and short investing can work here.

A top shorting strategy is the one that suits your share trading plan, experience and skill level.

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