1. Short Selling: Introduction
Filed Under » Active Trading, Short Selling, Stocks
By Brigitte Yuille
Have you ever been absolutely sure that a stock was going to decline and wanted
to profit from its regrettable demise? Have you ever wished that you could see
your portfolio increase in value during a bear market? Both scenarios are
possible. Many investors make money on a decline in an individual stock or
during a bear market, thanks to an investing technique called short selling.
(For related reading, see When To Short A Stock.)
Short selling is not complex, but it's a concept that many investors have
trouble understanding. In general, people think of investing as buying an
asset, holding it while it appreciates in value, and then eventually selling to
make a profit. Shorting is the opposite: an investor makes money only when a
shorted security falls in value.
Short selling involves many unique risks and pitfalls to be wary of. The
mechanics of a short sale are relatively complicated compared to a normal
transaction. As always, the investor faces high risks for potentially high
returns. It's essential that you understand how the whole process works before
you get involved.
2. Short Selling: What Is Short Selling?
Filed Under » Active Trading, Short Selling, Stocks
By Brigitte Yuille
First, let's describe what short selling means when you purchase shares of
stock. In purchasing stocks, you buy a piece of ownership in the company. The
buying and selling of stocks can occur with a stock broker or directly from the
company. Brokers are most commonly used. They serve as an intermediary between
the investor and the seller and often charge a fee for their services.
When using a broker, you will need to set up an account. The account that's set
up is either a cash account or a margin account. A cash account requires that
you pay for your stock when you make the purchase, but with a margin account
the broker lends you a portion of the funds at the time of purchase and the
security acts as collateral.
When an investor goes long on an investment, it means that he or she has bought
a stock believing its price will rise in the future. Conversely, when an
investor goes short, he or she is anticipating a decrease in share price.
Short selling is the selling of a stock that the seller doesn't own. More
specifically, a short sale is the sale of a security that isn't owned by the
seller, but that is promised to be delivered. That may sound confusing, but
it's actually a simple concept. (To learn more, read Benefit From Borrowed
Securities.)
Still with us? Here's the skinny: when you short sell a stock, your broker will
lend it to you. The stock will come from the brokerage's own inventory, from
another one of the firm's customers, or from another brokerage firm. The shares
are sold and the proceeds are credited to your account. Sooner or later, you
must "close" the short by buying back the same number of shares (called
covering) and returning them to your broker. If the price drops, you can buy
back the stock at the lower price and make a profit on the difference. If the
price of the stock rises, you have to buy it back at the higher price, and you
lose money.
Most of the time, you can hold a short for as long as you want, although
interest is charged on margin accounts, so keeping a short sale open for a long
time will cost more However, you can be forced to cover if the lender wants the
stock you borrowed back. Brokerages can't sell what they don't have, so yours
will either have to come up with new shares to borrow, or you'll have to cover.
This is known as being called away. It doesn't happen often, but is possible if
many investors are short selling a particular security.
Because you don't own the stock you're short selling (you borrowed and then
sold it), you must pay the lender of the stock any dividends or rights declared
during the course of the loan. If the stock splits during the course of your
short, you'll owe twice the number of shares at half the price. (To learn more
about stock splits, read Understanding Stock Splits.
3. Short Selling: Why Short?
Filed Under » Active Trading, Short Selling, Stocks
By Brigitte Yuille
Generally, the two main reasons to short are to either speculate or to hedge.
Speculate
When you speculate, you are watching for fluctuations in the market in order to
quickly make a big profit off of a high-risk investment. Speculation has been
perceived negatively because it has been likened to gambling. However,
speculation involves a calculated assessment of the markets and taking risks
where the odds appear to be in your favor. Speculating differs from hedging
because speculators deliberately assume risk, whereas hedgers seek to mitigate
or reduce it. (For more insight, see What is the difference between hedging and
speculation?)
Speculators can assume a high loss if they use the wrong strategies at the
wrong time, but they can also see high rewards. Probably the most famous
example of this was when George Soros "broke the Bank of England" in 1992. He
risked $10 billion that the British pound would fall and he was right. The
following night, Soros made $1 billion from the trade. His profit eventually
reached almost $2 billion. (For more on this trade, see The Greatest Currency
Trades Ever Made.)
Speculators can benefit the market because they increase trading volume, assume
risk and add market liquidity. However, high amounts of speculative purchases
can contribute to an economic bubble and/or a stock market crash.
Hedge
For reasons we'll discuss later, very few sophisticated money managers short as
an active investing strategy (unlike Soros). The majority of investors use
shorts to hedge. This means they are protecting other long positions with
offsetting short positions.
Hedging can be a benefit because you're insuring your stock against risk, but
it can also be expensive and a basis risk can occur. (To learn more about
hedging, read A Beginner's Guide To Hedging.)
Restrictions
Many restrictions have been placed on the size, price and types of stocks
traders are able to short sell. For example, penny stocks cannot be sold short,
and most short sales need to be done in round lots. The Securities Exchange
Commission (SEC) has these restrictions in place to prevent the manipulation of
stock prices.
As of January 2005, short sellers were also required to comply with the rules
set in place by "Regulation SHO", which modernized the rules overseeing short
selling and aimed to provide safeguards against "naked short selling." For
instance, sellers had needed to show that they could locate and get the
securities they intended to short. The regulation also created a list of
securities showing a high level of persistent sales to deliver.
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In July of 2007, the SEC eliminated the uptick, or zero plus tick, rule. This
rule required that every short sale transaction be entered at a higher price
than that of the previous trade and kept short sellers from adding to the
downward momentum of an asset when it was already experiencing sharp declines.
The rule has been around since the creation of the SEC in 1934. One of the
reasons it was put in place was to slow rapid and sudden declines in share
prices that can occur as a result of short selling.
In July of 2008, the SEC used its emergency powers to put an end to market
manipulations, such as spreading negative rumors about a company's performance
and sharp price declines. The markets had been volatile as a result of the of
mortgage and credit crisis, and the SEC wanted to establish a renewed
confidence. For a month, it didn't allow naked short selling on the stocks of
19 major investment and commercial banks, which included the mortgage finance
companies Fannie Mae and Freddie Mac. (To learn more, read The Uptick Rule:
Does It Keep Bear Markets Ticking?)
The SEC took further measures in September of 2008, once again using its
emergency authority to issue six orders to minimize abuses. This included a
move to halt short selling in shares of 799 companies in cooperation with the
United Kingdom's Financial Service Authority. 170 companies were later included
in the ban, which ended after the passage of the $700 billion U.S. bailout plan
in October 2008. Another order required short sellers get a sale and
immediately close it by making sure the shares were delivered. It later became
a rule.
Who Shorts?
Some insiders indicate that it takes a certain type of person to short stocks.
Many short sellers have been depicted as pessimists who are rooting for a
company's failure, but they've also been described as disciplined and confident
in their judgment. (To learn more, read Questioning The Virtue Of A Short Sale.)
Sellers are typically:
wealthy sophisticated investors
hedge funds
large institutions
day traders
Short selling isn't for everyone. It involves a great amount of time and
dedication. Short sellers need to be informed, skilled and experienced
investors in order to succeed.
They must know:
how securities markets work
trading techniques and strategies
market trends
the firm's business operations
4. Short Selling: The Transaction
Filed Under » Active Trading, Short Selling, Stocks
By Brigitte Yuille
Suppose that, after hours of painstaking research and analysis, you decide that
company XYZ is dead in the water. The stock is currently trading at $65, but
you predict it will trade much lower in the coming months. In order to
capitalize on the decline, you decide to short sell shares of XYZ stock. Let's
take a look at how this transaction would unfold.
Step 1: Set up a margin account. Remember, this account allows you to borrow
money from the brokerage firm using your investment as collateral.
Step 2: Place your order by calling up the broker or entering the trade online.
Most online brokerages will have a check box that says "short sale" and "buy to
cover." In this case, you decide to put in your order to short 100 shares.
Step 3: The broker, depending on availability, borrows the shares. According to
the SEC, the shares the firm borrows can come from:
the brokerage firm's own inventory
the margin account of one of the firm's clients
another brokerage firm
You should also be mindful of the margin rules and know that fees and charges
can apply. For instance, if the stock has a dividend, you need to pay the
person or firm making that loan. (To learn more, read the Margin Trading
tutorial.)
Step 4: The broker sells the shares in the open market. The profits of the sale
are then put into your margin account.
One of two things can happen in the coming months:
The Stock Price Sinks (stock goes to $40)
Borrowed 100 shares of XYZ at $65 $6,500
Bought Back 100 shares of XYZ at $40 -$4,000
Your Profit $2,500
The Stock Price Rises (stock goes to $90)
Borrowed 100 shares of XYZ at $65 $6,500
Bought Back 100 shares of XYZ at $90 -$9,000
Your Profit -$2,500
Clearly, short selling can be profitable. But then, there's no guarantee that
the price of a stock will go the way you expect it to (just as with buying
long).
Shorter sellers use an endless number of metrics and ratios to find shortable
candidates. Some use a similar stock picking methodology to the longs, but just
short the stocks that come out worst. Others look for insider trading, changes
in accounting policy, or bubbles waiting to pop.
One indicator specific to shorts that is worth mentioning is short interest.
Short interest is the total number of stocks, securities or commodity shares in
an account or in the markets that have been sold short, but haven't been
repurchased in order to close the short position. It serves as a barometer for
a bearish or bullish market. For instance, the higher the short interest, the
more people will anticipate a downturn. (For more insight, read Short Interest:
What It Tells Us.)
--- In [email protected], cuantraderidx@... wrote:
>
> So masi niat Short Sell kah?
> Semoga regional ijo la yah
>
>
> Sent from my BlackBerry® hasil cuan
>
> -----Original Message-----
> From: "aloysiussiwira" <aloysiussiwira@...>
> Sender: [email protected]
> Date: Sun, 20 May 2012 02:52:54
> To: <[email protected]>
> Reply-To: [email protected]
> Subject: [saham] Re: G7 Meeting - G-8 Talks With European Debt Next
>
> Security Issues Open G-8 Talks With European Debt Next
> By Margaret Talev and Kate Andersen Brower - May 19, 2012 8:48 PM GMT+0700
>
> Facebook Share
> LinkedIn
> Google +1
> 2 Comments
> Print
> QUEUE
> Q
>
> Leaders from the Group of Eight nations opened two days of economic and
> security discussions by considering ways to keep Iran from gaining nuclear
> weapons capability and to promote peaceful political transition in Syria,
> according to a U.S. official familiar with the talks.
>
> The G-8 summit, hosted by President Barack Obama at the presidential retreat
> in Camp David, Maryland, began last night with a dinner discussion of
> security matters ahead of meetings planned for today on the global economy,
> said the official, who briefed reporters on condition of anonymity.
>
> The talks so far have been "frank and useful," Obama said as he welcomed the
> leaders in remarks televised from Camp David this morning.
>
> "We are addressing here the two biggest threats to all our economies and that
> is of course the eurozone crisis but also the very high oil prices that
> translate into high prices at the pumps," U.K. Prime Minister David Cameron
> said today after meeting with Obama.
> Sense of Urgency
>
> The leaders are "making progress on both," Cameron said. "Particularly on the
> euro zone, what is required is a sense of urgency and then clear actions for
> strong banks, strong deficit reduction plans," he told reporters.
>
> Leaders were reserving most of today for talks on how to mix pro-growth
> policies and austerity measures to manage the Greek and euro-region crises,
> along with discussions about oil supplies and prices.
>
> Before leaving for Camp David yesterday, Obama called Europe's debt crunch
> "an issue of extraordinary importance" to the world economy and said he
> expected a "fruitful discussion" on how to couple fiscal responsibility with
> policies that promote growth.
>
> Obama met privately in Washington before the G-8 talks with France's new
> President Francois Hollande, who echoed the U.S. president's position that
> growth must be a priority along with improved public finances. Hollande said
> he and Obama "share the same views" that Greece should stay in the euro
> region "and that all of us must do what we can to that effect."
> Tensions Over Debt
>
> Hollande also met yesterday in Washington with U.K. Prime Minister David
> Cameron, who urged the French leader to back euro region-wide bonds. Cameron
> warned Hollande that he'll veto any attempt to introduce a European Union
> financial transactions tax.
>
> Friction over how to approach the European debt crisis is shadowing the G-8
> talks. Obama and Hollande are urging more emphasis in Europe on pro-growth
> policies, while German Chancellor Angela Merkel has opposed any measures that
> might add to nations' debt burdens.
>
> At the helm of Europe's biggest economy, Merkel has taken the lead in calling
> for fiscal discipline to combat the region's debt crunch.
>
> When Obama greeted Merkel as she arrived at Camp David, she simply shrugged
> when he asked how she was doing.
>
> "Well, you have a few things on your mind," Obama told her.
> Pressure on Greece
>
> European Union leaders said yesterday they have the tools and the will to
> protect the euro and combat the bloc's debt crisis, seeking to reassure G-8
> members that are doing enough to contain financial turmoil that has spread
> from Greece to Ireland, Portugal and Spain.
>
> For now, the EU is "determined to stay the course" and continue its efforts
> to cut deficits across the 27-nation union, while also honoring commitments
> made to Greece, European Council President Herman Van Rompuy told reporters
> yesterday.
>
> "We will do whatever needed to guarantee the financial stability of the euro
> zone," said Van Rompuy, who was joined at Camp David by EU President Jose
> Barroso.
>
> Almost $4 trillion was wiped from global equity markets this month amid
> speculation that Greece will abandon the euro, while recession and loan
> losses led Moody's Investors Services May 17 to downgrade 16 Spanish banks.
>
> Greece is scheduled to hold elections on June 17, with an international
> rescue and its future as one of 17 nations using the euro at stake. The
> nation's credit rating was downgraded one level by Fitch Ratings on concerns
> that the country won't be able to muster the political support to meet
> bailout terms.
> Oil Reserves
>
> Obama and the other G-8 leaders will also assess oil markets and the impact
> of an EU embargo on Iranian oil that's set to begin July 1, U.S. National
> Security Adviser Tom Donilon said on May 17. The U.S. and its allies are
> weighing the use of strategic oil reserves to protect the global economy in
> the event the embargo drives up the price of crude.
>
> Crude oil for June delivery fell $1.08 to $91.48 a barrel on the New York
> Mercantile Exchange, the lowest settlement since Oct. 26. Prices retreated
> 4.8 percent this week, and are down 7.4 percent this year on concern that
> Europe's debt crunch will curb demand.
>
> The International Energy Agency has no definite plan to release fuel from its
> emergency reserves, David Fyfe, the head of its oil industry and markets
> division, said at a conference in London yesterday. U.S. officials have
> repeatedly said no decision has been made on using reserves in the U.S. and
> Europe, which were last tapped in June 2011 to offset supply disruptions
> caused by upheaval in the Middle East and North Africa.
> Syria, North Korea
>
> The G-8 includes the U.S., Canada, the U.K., Germany, France, Italy, Japan
> and Russia. The EU also has two seats.
>
> During last night's dinner, the leaders discussed the status of a six-point
> peace plan for Syria put forward by United Nations envoy Kofi Annan, the U.S.
> official said. The G-8 leaders recognized the need to move fast on a
> political transition from the regime of Syrian President Bashar al-Assad, the
> U.S. official said.
>
> The meeting participants also affirmed the need for Iran to take concrete
> steps to show that it's not pursuing nuclear technology for hostile purposes,
> and they agreed that North Korea must be dissuaded from taking further
> provocative actions with its missile and atomic programs, the official said.
> NATO Summit
>
> From the G-8 meeting in rural Maryland, Obama and other leaders will travel
> tonight to Chicago for a North Atlantic Treaty Organization summit where a
> central topic will be a discussion of military issues, including funding and
> manpower to support Afghanistan after coalition forces leave at the end of
> 2014.
>
> In a speech yesterday before the G-8 summit began, Obama called for a new
> phase of African farm aid as 45 companies worldwide including Cargill Inc.
> pledged more than $3 billion to ease threats to global security posed by
> scarce nutrition.
>
> The "New Alliance for Food Security and Nutrition" has a goal of pulling 50
> million people from poverty in the next 10 years, Obama said.
>
> To contact the reporters on this story: Margaret Talev in Washington at
> mtalev@...; Kate Andersen Brower in Camp David, Maryland at kandersen7@...
>
> To contact the editor responsible for this story: Steven Komarow at
> skomarow1@...
>
> --- In [email protected], cuantraderidx@ wrote:
> >
> > Tadi baca di kompas sabtu kemaren tnyata G7 sudah melakukan pertemuan dan
> > hasilnya sangat positif, semoga sentimen ini bisa membuat bursa regional
> > kembali rebound senin.
> >
> > Salah satu yg saya baca kalo nda salah mereka akan memberi stimulus
> > tambahan untuk mencegah terjadinya krisis. Cmiiw
> > Sent from my BlackBerry® hasil cuan
> >
>
------------------------------------
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