Any bankers or sharedealers, please explain short selling?

[OldManEmu]

Short Selling

Short Selling

Wayne

Usually it is hedge funds that borrow stock off superannuation (retirement funds, long term investors) directly, hedge funds pay a fee to borrow the stock for a set period of time then sell it and hope to buy it back at a lower price with the expectation that the lower price will cover the borrowing fee and make a profit by the end of the borrowing period. The superannuation fund gets a guaranteed fee up front in return for loaning the stock and gets the stock back at the end of the agreed loan period. Superannuation funds tend to be fundamental investors (long term) they believe in the long term the stock will return to its fundamental valuation despite the havoc that the hedge fund short selling may have caused in the interim. If however the hedge fund can't return the stock at the end of the load period or pay another agreed loan fee to roll the loan over this is when things start going bad.

Superannuation funds and related entities are substantial players in the Australian market due to Australia's mandatory retirement savings regime. Funds under management by these superannuation funds exceed 1 trillion dollars. Australian only has a population of 21 million. This is the equivalent of 15+ trillion with the US population of 300 million.

 

[WayneGM]

OldManEmu, does that mean private investors don't have access to short selling like they do over here?

 

[OldManEmu]

Short Selling

Short Selling

Wayne short selling is possible as a private client in Australia, however it is isn't easy, not all brokers will do it for private clients and you need to demonstrate you can cover loses if the trade goes against you. Only one person I know has does it, however they specialise in derivatives trading.

 

[WayneGM]

Wayne in Australian there is no requirement to "disclose it is a short selling trade". The loan of stock is "off market" for a fee and doesn't have to be declared to anyone.

One of the benefits of disclosure here is that outstanding short sales is reported daily so can be used as a predictor of over sold markets to anticpate a market rally. Ultimately short sellers must cover their short positions by purchasing the stock. That influx of buying activity results in a rally. If you are nimble (and gutsy) enough speculators can benefit from both the down swing and up swing.

 

[WayneGM]

Wayne short selling is possible as a private client in Australia, however it is isn't easy, not all brokers will do it for private clients and you need to demonstrate you can cover loses if the trade goes against you. Only one person I know has does it, however they specialise in derivatives trading.

Interesting. Personally I prefer derivatives like Put options to short selling. With Put options the risk is limited to the cost of the option and you don't need the 150% margin.

 

[Mary]

One of the benefits of disclosure here is that outstanding short sales is reported daily so can be used as a predictor of over sold markets to anticpate a market rally. Ultimately short sellers must cover their short positions by purchasing the stock. That influx of buying activity results in a rally. If you are nimble (and gutsy) enough speculators can benefit from both the down swing and up swing.

As a former skydiver, speculators seem to me to be kindred spirits.
That's scary!

 

[Bonzo Dog]

As this thread has run it's course, a thank you to all who contributed. I'm now better informed.

 

[WayneGM]

As this thread has run it's course, a thank you to all who contributed. I'm now better informed.

....now go forth and make a few of million.