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The Masked Tulip

So Tmt Shorts A Share From His Prized House Buying Fund

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Let's imagine a world in which TMT shorts a share...

I wake up Monday morning deciding that Tesco is going to plunge so I short £10 per point that Tesco loses.

Whoa! In the first 10 minutes Tesco is down 10 points so TMT has made £100.

Fantastic - toasted buttered tea cakes all round.

But Tesco keeps on falling another 5 point so I make an extra £50 bringing my total to £150.

Whoa! Might have a pot of tea also.

TMT is getting nervous now so can I simply close my short at that point. Tesco is still falling but I am nervous that there might be a sudden bounce.

My question being can you close a short at any point you wish during trading or do you have to wait until close of day?

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any time.

Indeed whether that's spread betting, CFDs or real shares you're talking about. Most brokers will also let you set automatic close-outs so you can limit your potential losses or gains.

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Thanks.

No, I would not short but was just curious.

I think my main question really was that here I am celebrating my £100 from my 10 point fall and had no idea that if I closed the short anytime - i.e. so I could get my grubby hands on my £100 profit - whether I would somehow forfeit my 'win'.

In other words, whether I could close it anytime or had to wait until the close of the market.

One last question, is this the kind of thing that you can open and close yourself in some kind of online account or do you have to ring a broker up to open a short and then to close it?

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Let's imagine a world in which TMT shorts a share...

I wake up Monday morning deciding that Tesco is going to plunge so I short £10 per point that Tesco loses.

Whoa! In the first 10 minutes Tesco is down 10 points so TMT has made £100.

Fantastic - toasted buttered tea cakes all round.

But Tesco keeps on falling another 5 point so I make an extra £50 bringing my total to £150.

Whoa! Might have a pot of tea also.

TMT is getting nervous now so can I simply close my short at that point. Tesco is still falling but I am nervous that there might be a sudden bounce.

My question being can you close a short at any point you wish during trading or do you have to wait until close of day?

Lets decompose EXACTLY what shorting a share involves.

What you (or your broker on your behalf) has to do, is to find some investor in Tesco shares who is willing to lend his shares to you for a fee.

Lets say a big pension fund has loads of Tesco shares and intend to keep them for at least another year, so is entirely happy to lend them to you for, say, 1% their value, per month. So you BORROW the shares.

Why would they do this? Well, under the terms of lending them to you, they still get to collect dividends from you, and they also make an additional 12% per year from the fees they charge you. Hurrah!

So now you have your borrowed Tesco shares. You then SELL them in the market, and keep the proceeds, but the pesky terms of the lending contract means you have to provide that cash as security for the loan of the shares.

When you want to close out your position, you have to BUY some Tesco shares in the market, and then you can unborrow them from the funds that lent them to you, and free up the original cash you provided as security.

SO your return is the original sale price, less the cost of buying the shares back from the market - less the fee. Which is exactly what you wanted.

So, when can you unwind your short?

Whenever you can buy back the shares from the market. So the market must be open, and their must be people willing to sell the shares to you.

There was an odd situation earlier this year, when something like this happened: a hedge fund was shorting VW, but didn't know that Porsche had been buying up lots of shares indirectly through the options market. When Porsche went public that they wanted to buy VW, the hedge fund literally could find enough shares available in the market to close out their short positions. For a short period, while this happened, the share price in VW went ballistic, as the hedge fund tried to to buy up the entire supply of the shares in the market in order to close out the short. Of course then hedge fund lost their shirts, and floating investors who sold on the spike made out like bandits. And Porsche was accused of rigging the market unfairly!

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What I am trying to get to is that in the 08/09 crash apparently some boys made millions from shorting the market... some made hundreds of millions and some made billions...

So WTF were they doing? Shorting the markets by 10 million a point? Or shorting every share in the market by a few million a point?

That is one heck of a bet and one which, I presume, if the markets went up a single point would lose you a fortune... even bankrupt you?

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Lets decompose EXACTLY what shorting a share involves.

What you (or your broker on your behalf) has to do, is to find some investor in Tesco shares who is willing to lend his shares to you for a fee.

Lets say a big pension fund has loads of Tesco shares and intend to keep them for at least another year, so is entirely happy to lend them to you for, say, 1% their value, per month. So you BORROW the shares.

Why would they do this? Well, under the terms of lending them to you, they still get to collect dividends from you, and they also make an additional 12% per year from the fees they charge you. Hurrah!

So now you have your borrowed Tesco shares. You then SELL them in the market, and keep the proceeds, but the pesky terms of the lending contract means you have to provide that cash as security for the loan of the shares.

When you want to close out your position, you have to BUY some Tesco shares in the market, and then you can unborrow them from the funds that lent them to you, and free up the original cash you provided as security.

SO your return is the original sale price, less the cost of buying the shares back from the market - less the fee. Which is exactly what you wanted.

So, when can you unwind your short?

Whenever you can buy back the shares from the market. So the market must be open, and their must be people willing to sell the shares to you.

There was an odd situation earlier this year, when something like this happened: a hedge fund was shorting VW, but didn't know that Porsche had been buying up lots of shares indirectly through the options market. When Porsche went public that they wanted to buy VW, the hedge fund literally could find enough shares available in the market to close out their short positions. For a short period, while this happened, the share price in VW went ballistic, as the hedge fund tried to to buy up the entire supply of the shares in the market in order to close out the short. Of course then hedge fund lost their shirts, and floating investors who sold on the spike made out like bandits. And Porsche was accused of rigging the market unfairly!

Thanks for explaing that - so shorting a share is different to short spread betting which the other posters have alluded to?

(Which is what I thought.)

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Thanks for explaing that - so shorting a share is different to short spread betting which the other posters have alluded to?

(Which is what I thought.)

The spread betting firms (with whom you might have a spread betting account) will have an account themselves at a broker, so that when you open up a short position on Tesco with a spread bet, they (if it is big enough for them not to run the risk themselves, or internally hedge it against someone else who has taken a long spread bet position) will call up their broker, and instruct the broker to place a short position on the share.

When you unwind your short position, they will instruct their broker to unwind their short position.

If they can't get their short position unwound (because the the broker can't buy the shares back at that price) they won't let you unwind your short position. They'll tell you that the trade couldn't be executed at that price, and move the price on your screen up instead.

So the spread betting position is very similar to direct position but intermediated through the spread betting firm.

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The spread betting firms (with whom you might have a spread betting account) will have an account themselves at a broker, so that when you open up a short position on Tesco with a spread bet, they (if it is big enough for them not to run the risk themselves, or internally hedge it against someone else who has taken a long spread bet position) will call up their broker, and instruct the broker to place a short position on the share.

When you unwind your short position, they will instruct their broker to unwind their short position.

If they can't get their short position unwound (because the the broker can't buy the shares back at that price) they won't let you unwind your short position. They'll tell you that the trade couldn't be executed at that price, and move the price on your screen up instead.

So the spread betting position is very similar to direct position but intermediated through the spread betting firm.

Right, thanks.

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some boys made millions from shorting the market... some made hundreds of millions and some made billions...

There are two parties to every trade.

The buyer and the seller.

The winner and the loser.

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some boys made millions from shorting the market... some made hundreds of millions and some made billions...

There are two parties to every trade.

The buyer and the seller.

The winner and the loser.

Here stateth the obvious.

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If anyone was thinking of going down this route, you would also be better off using CFDs via someone like IG markets since the buy/sell spread is not as bad. I'm not recommending it though, it can be an easy way to lose money.

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some boys made millions from shorting the market... some made hundreds of millions and some made billions...

There are two parties to every trade.

The buyer and the seller.

The winner and the loser.

Only if they're both speculators gambling.

Otherwise, no reason they can't both be winners. The buyer acquires a valuable asset, while the seller cashes in an investment to raise money for something he happens to want.

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So WTF were they doing? Shorting the markets by 10 million a point? Or shorting every share in the market by a few million a point?

A few thousand hedge fund managers bet trillions of other people's money.

A handful made a few billion profit.

Some made a few millions.

The vast majority lost some or all of their clients' money.

Try to remember that you usually only hear about the success stories.

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Another thing.

I just read a piece somewhere in which some traders said one needs 10,000 hours on the job before he casn be expected to know how to make money.

It sounds about right.

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Wait a minute.

Im a pension fund and someone approaches me for shares in Tesco. He offers me 1% per month and the divi to borrow my shares.

If I do so, I beleive he will be able to return them.

He beleives he is going to make more than 12%.

Maybe I should sell them and make the 12% AND what the guy expects to make AND buy them back next year at a lower price.

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Maybe I should sell them and make the 12% AND what the guy expects to make AND buy them back next year at a lower price.

That's gambling.

Taking the 12%[1] is pure profit for your policyholders (unless/until it gets to the point where speculation threatens the business itself). And it comes on top of your dividends.

[1] Wonder how many short positions are held a full year? Must be rare, though in a case like SCO it made sense. Or if you opened a short position on HBOS the day the Northern Rock queues formed, and never flinched ...

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That's gambling.

Taking the 12%[1] is pure profit for your policyholders (unless/until it gets to the point where speculation threatens the business itself). And it comes on top of your dividends.

[1] Wonder how many short positions are held a full year? Must be rare, though in a case like SCO it made sense. Or if you opened a short position on HBOS the day the Northern Rock queues formed, and never flinched ...

well, if you mean its a risk, and 1% and a divi is a price worth paying, there is a chance you WONT get your shares back...still a gamble.

course, if the buyer is a hedge fund, ie, hedging a clients risk, then no doubt, they would be expecting to gain on the arbitrage of another deal they had done to counter the Tesco short.

I think thats how its supposed to work...I suspect the hedgies carry out a lot of plain speculations

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well, if you mean its a risk, and 1% and a divi is a price worth paying, there is a chance you WONT get your shares back...still a gamble.

Not if the money sits in an escrow account. And can make margin-calls if necessary.

course, if the buyer is a hedge fund, ie, hedging a clients risk, then no doubt, they would be expecting to gain on the arbitrage of another deal they had done to counter the Tesco short.

I think thats how its supposed to work...I suspect the hedgies carry out a lot of plain speculations

Yes, the term "hedgie" seems to have expanded to encompass big-bet gamblers alongside those who actually hedge. I expect they groan at that just as much as, for example, software hacks (like me) groan at the meeja usage of "hack" to mean someone who gains unauthorised access to other people's computers.

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As soon as you open any sort of position you are instantly a loser. Simply because of the 'spread'. Which is the whole point of how they make money. So you don't have to win to make money. You have to win just to break even. Then you have to win again to actually make money.

Tough game.

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As soon as you open any sort of position you are instantly a loser. Simply because of the 'spread'. Which is the whole point of how they make money. So you don't have to win to make money. You have to win just to break even. Then you have to win again to actually make money.

Tough game.

You're a guaranteed loser if you keep money long-term at 2% in the bank.

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A few thousand hedge fund managers bet trillions of other people's money.

A handful made a few billion profit.

Some made a few millions.

The vast majority lost some or all of their clients' money.

Try to remember that you usually only hear about the success stories.

Moral hazard occurs when a party insulated from risk may behave differently than it would behave if it were fully exposed to the risk.

http://en.wikipedia.org/wiki/Moral_hazard

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  • 142 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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