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Troubleatmill

'shorting' Shares

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I think I've grasped the principle of shorting shares, please check my logic here.

I have £1,000 and I think Countrywide share at £4.00 each are expensive. I pick the phone up and open an account with a stockbroker and say "I want to short Countrywide at £3.50"

The broker then says, OK, here are 250 Countrywide shares at £4.00 each, which then you immediately sell (to the broker?). You stick the £1,000 in the bank and you're then are given a bit of paper making you the proud owner of 250 countrywide shares.

6 months later, the housing market has stagnated and nothing is selling - Countrywide shares plummet to £3.50, which you then say 'hello Mr Broker, I want to buy my 250 shares at £3.50 (or £875) - you're £125 up.

Is this correct ? My logic I mean? What if CW shares went to £40 ? Would I have to fork out £10,000 ? What if they went to 4p ? Would I make £990 ?

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I think I've grasped the principle of shorting shares, please check my logic here.

I have £1,000 and I think Countrywide share at £4.00 each are expensive. I pick the phone up and open an account with a stockbroker and say "I want to short Countrywide at £3.50"

The broker then says, OK, here are 250 Countrywide shares at £4.00 each, which then you immediately sell (to the broker?). You stick the £1,000 in the bank and you're then are given a bit of paper making you the proud owner of 250 countrywide shares.

6 months later, the housing market has stagnated and nothing is selling - Countrywide shares plummet to £3.50, which you then say 'hello Mr Broker, I want to buy my 250 shares at £3.50 (or £875) - you're £125 up.

Is this correct ? My logic I mean? What if CW shares went to £40 ? Would I have to fork out £10,000 ? What if they went to 4p ? Would I make £990 ?

Hi

Try This example from http://www.blueindex.co.uk/examples.html#short

SHORT CFD EXAMPLE

Opening Trade

You decide that Vodafone shares are overpriced and are going to fall. You call your trader at Blue Index and execute a trade to sell short at the market price of the underlying shares or better.

Bid Offer

Share Price of Vodafone 125.00p 125.25p

Number of Shares 25,000

Value of Position £31,250

Commission -£156 (0.50%)

Initial Margin Requirement £3,125

Closing the Position

2 days later Vodafone shares have fallen. You decide to close the position at a profit.

Bid Offer

Price of Vodafone 116.00 115¾ - 116p

Number of Shares 25,000

Value of Position £29,000

Commission £145 (0.50%)

Financing Cost (position held over 2 nights) +£3.42

Total Cost £297.58

Total Monies Required £3,422.58

Total Profit after costs £1,952.42p

Net Percentage Profit on trade 6.2%

Percentage return on monies utilised 62.47%

This example is obviously a favourable outcome.

If the share price had moved against you, the leverage effect would have magnified your losses.

By the way many have tried and almost all have failed to profit from shorting CWD. I'd pick another example tied to the housing market if you're bearish on HPI (like MFI which would have been an earner).

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These are not good times to be shorting shares. Sentiment is too bullish for the time being. All sorts of flawed stocks are defying gravity at the moment but there will be huge opportunities before long.

Open a spread betting account and "paper trade". You will soon see how hard it is to make money.

I am relatively new to spread betting and shorting or placing "down bets". However I have learned rather expensively that you need to have iron discipline and swiftly close trades that are going against you (i.e. most of them).

This will ensure that you lose your money slowly rather than fast :rolleyes:

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  • 301 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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