Short selling is the sale of a security that is not owned by the seller or that the seller has borrowed. Short selling is motivated by the belief that a securityās price will decline, enabling it to be bought back at a lower price to make a profit.
thats true but I think share trading sites often have a feature where they automatically reverse your short position if the share price increases too much so that youre going to lose your whole investment. I expect its primarily to protect themselves as people can often purchase on margin. I think they do the same if you purchase shares and the price drops too much. Im not sure how common a feature it is though
Also i dont think the best way to stop someone doing something stupid is to not allow them to do it, people will always find a way and all you do is restrict genuine people who want to trade that way. There are plenty of ways to reduce your risk such as stop-losses
People will hate it when thinking āI will top up another 3% to make sure I keep my short positions. And another 2%. And another 4%. God, it is still rising! And then I lost everything thanks to Freetrade because I could never blame myself, could I?ā
Do not get me wrong, I would fully support leverage trading, but prefer less risky options trading, where you genuinely have no room for more losses/expenditure [to cover the margin call, for instance] after you buy puts/calls (and even that does not seem to be coming into play).
I donāt think itās a necessary addition as a stockbroker, HL doesnāt have it for example. I think itās a risky addition when a large part of your targeted user base is new investors.
Investing long in equity gives you infinity x upside, short selling gives you infinity x downside. If youāre a sophisticated enough investor to know enough fundamentally about one company to know itās going to crash then fair enough - speak to JP Morgan about that. Itās called trading.
Investing is a long term call. My opinion is that Freetrade should be facilitating sensible investing practices, I donāt think short selling is sensible for most people. Maybe it should be a premium paid-for options for self-certified sophisticated Freetraders.
Thatās actually not true. Recent legislation prevent non-professional investors losses being greater than 100%.
Short selling is a hugely powerful tool to create a balanced portfolio, and these over purchased ETF and indices huggers will get whacked when the market corrects. Would be nice to have some protection against it.
Personally, Iām not against short selling.
Iām convinced there are some merits to short selling, I think if one believes in some company that is being shorted then they can buy the stock and make some money by lending those shares
I donāt really care if Freetrade provides this or not.
Here is a short podcast of short selling from Indicator Planet money.
Maybe Freetrade can show short information for a stock
https://shorttracker.co.uk/ which shows details of all short positions in UK listed companies, might be able to see some correlation between short interest and stock price?
Iām not sure why thereās such a dislike for it here. Any form of investing has an element of risk, and I think it would be unfair to say short selling carries any more risk as everyone should do their due diligence.
Personally Iād prefer to see options trading, it seems very popular on Robin Hood as the risk is more ālimitedā in the sense you know exactly how much you stand to lose. Buying a stock in a company is inherently more risky as that stock in theory could basically go to 0 (e.g HMNY).
Great idea, let people do with their money what they want. If youāre worried about people loosing money then add an application stage or an education stage so that uneducated investors fully understand what theyāre getting into.
I understand the desire to protect people by not giving them access to these tools but I assume theyāll just go elsewhere where itās supported.
While Freetrade Support sort-of convinced me we wonāt really see short selling option with Freetrade unless there is a substantial interest , I am still stubborn and feel the need to comment.
Yes, short selling is extremely risky. It is not for everyone. It is not for investors - it is meant for traders. Freetrade is meant to be an investment platform. Itās all well understood. However, fees that Freetrade plans to introduce (or lack of any besides Alpha plan which is a bargain) sound extremely attractive for everyone - even more to traders than investors. I am sure that many experienced traders will want to save hundreds of dollars per month simply by choosing a new broker! And experienced traders will want to have the ability to short sell - even if it is limited for intra-day trading.
Again, I understand that Freetrade is not meant to be for day traders. But the amount of money a day trader may save with Freetrade is substantially higher than the amount of money that a long-term investor could save. Long-term investors execute only a few trades throughout a year anyway. Alpha pricing plan seems to be suited to anyone who trades frequently, so itās a bit peculiar that there is a system appealing to traders, but then common trading practices are discouraged.
Idea
Perhaps, include an additional pricing plan for traders wanting to short-sell? Add additional terms and conditions, i.e. notes to new traders so that they are aware that short-selling is probably not for them? If those two things/barriers (illustrative examples how risky it is if you do not know what you are doing and the fact that you need to pay more per month) do not turn beginner traders away and they go all in, they do not cut their losses on time and they lose everything through short-selling - well, hard luck hahaā¦there were multiple āfiltersā along the way which could have stopped them on time.
Also, as I said, consider the option of introducing short selling intraday. There is much less risk involved compared to the situation where you keep shorting overnight.
Hope this makes sense. I will continue watching how Freetrade develops.
Cheers!
Iām not totally sure how it all works but arenāt the large fees an element of covering the potential loss (as well as the profit from people who see the price rise before they can rebuy)? Are the potential losses an acceptable risk for a start up? If Freetrade is attractive to day traders because of how much they can save them how would an additional fee keep it attractive?
Iām not sure āhard luck hahaā is the message they want to be sending