Short selling


(Alex Sherwood) #1

A feature request from Intercom:

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 security’s price will decline, enabling it to be bought back at a lower price to make a profit.

Definition from Investopedia.


(Emma) #2

Dislike button needed


(Stephen Cornelius) #3

why do you dislike short selling?


(Vladislav Kozub) #4

It can lead to more than 100% losses if used by unprofessional investors, hence unlikely to be widely commended :slight_smile:


(Stephen Cornelius) #5

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


(Vladislav Kozub) #6

Yes, Margin Call is an option.

People will hate it when thinking “I 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?”

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).


(Dave Smith) #7

I don’t think it’s a necessary addition as a stockbroker, HL doesn’t have it for example. I think it’s a risky addition when a large part of your targeted user base is new investors.


(Jim) #8

Debenhams springs to mind here - however I’m not sure they’ve got any shares left that aren’t already out on loan…


(Dave Smith) #9

Shorting can leave you vulnerable to this sort of thing https://www.telegraph.co.uk/finance/globalbusiness/3362913/Porsche-crashes-into-controversy-in-the-ultimate-short-squeeze.html


(Harry) #10

Investing long in equity gives you infinity x upside, short selling gives you infinity x downside. If you’re a sophisticated enough investor to know enough fundamentally about one company to know it’s going to crash then fair enough - speak to JP Morgan about that. It’s called trading.

Investing is a long term call. My opinion is that Freetrade should be facilitating sensible investing practices, I don’t think short selling is sensible for most people. Maybe it should be a premium paid-for options for self-certified sophisticated Freetraders.


(James Brierley) #11

That’s 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.


(Giridhar Tammana) #12

Personally, I’m not against short selling.
I’m 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 :wink:

I don’t 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 :raised_hand:

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?


#13

As far as I know you can’t vote against an idea in this forum.

If someone created a topic called Don’t Allow Short-Selling and people voted for it, would that effectively be… short selling short selling? :smile:


(Emma) #14

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#15

So instead of Freetrade it’ll be Premiumtrade? No, I don’t think so :rofl:


#16

Freetrade Alpha so Alphatrade*

Freetrade have a freemium business model. This definitely strikes me as a premium feature if anything.


(Vladislav Kozub) #17

This is what Robinhood does and seems to work quite well.


(Gareth) #18

I’m not sure why there’s 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 I’d prefer to see options trading, it seems very popular on Robin Hood as the risk is more ‘limited’ 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).


(Matt) #19

Great idea, let people do with their money what they want. If you’re worried about people loosing money then add an application stage or an education stage so that uneducated investors fully understand what they’re getting into.

I understand the desire to protect people by not giving them access to these tools but I assume they’ll just go elsewhere where it’s supported.


(Karlo) #20

While Freetrade Support sort-of convinced me we won’t really see short selling option with Freetrade unless there is a substantial interest :grin:, 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. It’s 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 it’s 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 haha…there were multiple ‘filters’ 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!