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What is shorting selling ?
Selling short is simply profiting when a price falls. If the price was 100 and the price goes down to 75 you make a profit of 25. Conversely if the price went up from 100 to 125 you would make a loss of 25.
How does short selling work?
Shortling is a strategy that can be used in either investing or trading. Essentially shorting allows you to speculate on assets that you believe will fall in value, allowing you to potentially benefit from falling markets rather than just relying on traditional (long) buy only strategies.
We know shorting allows you to speculate on markets that are falling. However the process is not as simple as buying an asset and waiting for it to go up, before you sell to make a profit. To take a short position it would normally involve you borrowing the asset then selling the asset and buying it back at a cheaper price. Returning the asset and keeping the difference as your profit.
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Stage 1
You borrow the asset (AstraZeneca shares at £80)
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Stage 2
You immediately sell the asset (AstraZeneca shares at £80)
As you are a short seller, you expect the shares price to decrease. On this occasion you are right, and AstraZeneca shares drop to £78
Stage 3
You purchase the shares back (AstraZeneca shares at £78)
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Stage 4
You return shares to the lender
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Stage 5
Receive profit or lose. On this occasion you make £2
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Benefits of short selling with derivatives?
Short selling with derivatives, such as CFDs and Spread betting simplifies the whole process for you, eliminating the stages above. Allowing you to speculate on just the price movements of the assets, without ever owning them or needing to go through the process of borrowing the assets.
To be a short seller you simply choose the assets and amount you want to short sell and execute the trade. Making a profit or loss on just the price movement. You can short sell most assets, including shares, indices, forex, and commodities.
Spread betting
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No Capital Gains tax on profits (2)
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No commission, just the spread
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No stamp duty on UK shares
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Negative balances will be brought back to zero
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CFDs​
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DMA Trading on shares and forex (3)
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Offset losses against profits
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No stamp duty on UK shares
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Negative balances will be brought back to zero
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Benefits of trading with Guardian?
Huge range of markets to short
Including shares, indices, forex and commodities.
Stop losses
Set a stop loss to close your short position automatically if the market moves against you. Stop losses are free but your short position may be closed out at a lower price than your order if the market gaps.
Risk management
Risk management tools available to avoid large losses.
Guaranteed stop loss
Like a standard stop loss but guarantees that your order will be closed at the level requested by you. There is no cost to set up a guaranteed stop loss, but you will pay a small premium if it is triggered.
Dedicated relationship manager
All trading clients have unlimited access to their own dedicated relationship manager.
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All of our relationship managers are qualified in derivatives including Spread betting and CFDs and hold the prestigious MCSI status.
Negative balance protection
Negative balance protection ensures that you will never have a negative balance as our platform provider IG will always bring your balance back to zero at no cost to you. (1)
How to short a stock?
Here is a worked example of short selling a stock.
AstraZeneca shares are trading at £80 and you think the price will fall.
You open a short position of 1,000 AstraZeneca shares at £80, two days later the AstraZeneca shares have dropped down to £78. You decide to close your position.
Your profit would be the difference between the open price of £80 and sell price of £78. Therefore as you bought 1000 shares, it is 1,000 shares x £2 = £2,000 profit before commission.
However, if the price of AstraZeneca shares had risen by £2 you would have lost £2,000 before commission.
How to short an index?
Here is a worked example of short selling an index. (FTSE 100 contract at £10 a point)
The FTSE 100 is currently trading at 7400 with a spread of 7399–7401
You believe that the FTSE is going to fall and short sell 1 FTSE contract. You are selling the contract, so the sell price is at 7399. As the contact is £10 a point your exposure level is £10 x 7399 at a total value of £73,990.
Later the FTSE has fallen to 7299, with a spread of 7298–7300.
You decide to close your short position and take a profit by buying back 1 FTSE contract at 7300. As the contact is £10 a point your closing level is £10 x 7300 at a total value of £73,000. Which provides you a profit of £990. Which was a downward move of 99 point at £10 a point = £990.
Short selling risk
You should be aware, with shorting, unlike a traditional long (buy) position which can only go to zero, a short position has unlimited downside: for example, a stock could go up from £1 to £11 (or more).
If you had a short position at £1 you could lose 10 times your investment ie 10 x £1 rather than the £1 you would have lost if you went long (buy) and it went to £0.
Why short sell ?
For profit
Short selling allows you to take advantage of a whole new set of opportunities. You can profit from the many assets that come under selling pressure at some point due to geopolitical uncertainty, economic news, supply and demand shocks and company mismanagement.
To hedge risk
Short selling allows you to hedge your risk, in a given asset, for a certain amount time. You are long and short of the same assets and therefore eradicating risk, but only whilst the hedge is active.
Short selling opportunities
Companies being mismanaged
If you believe the management team of a company are failing and are making poor decision. This will directly impact result in the company, eventually causing the price to fall.
Missing targets
Companies have an obligation to report the market at regular intervals their progress and financial numbers. This means the company and analysis give forecast of what they believe will be achieve. If these forecasts and expectations are missed, this can cause a negative impact on the share price.
Failing business models
If you believe the future demand for the service or company is going to decline, then the likelihood is the share price will do the same. For example, if you are a company that owns a chain of petrol stations and the government wants all cars to be electric which are going to be charged at home.
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Guardian Stockbroker reviews
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I could not more highly recommend Guardian Stockbrokers, everyone has been brilliant. The attentiveness, training and technical detail provided, has enabled a fast track learning and an ability to manage the portfolio in a way that would far exceed my own capabilities. It is almost as though they own the positions themselves; via their due-diligence and proactive manner of continuous monitoring. Above and Beyond.
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​Positive: Professionalism, Responsiveness
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Professional and proactive I’m really happy that they were recommended to me.
I would recommend Guardian Stockbrokers.
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​I've known Guardian Stockbrokers since their inception.
When dealing with trading, you want to work with people that are professional, personable and trustworthy.
Guardian Stockbrokers are all of the above.
I'd recommend them any day!
Choose Guardian Stockbrokers to be your partner in trading
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Huge range of markets
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Negative balance protection applies to trade related debt only and is not available to professional traders.