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Shorts, short trading, or short selling are all ways of describing a process where a trader tries to profit from an expected fall in the price of a security. Depending on the asset class involved, short trading may be complicated. In equities, short trading requires a securities lending agreement, and the borrowing and returning of shares, whereas in options or the forex market short selling is as simple as entering a long trade.
For FX, options contracts or certain over derivatives, short selling is extremely simple and involves taking the other side of a trade. For equities however short selling requires a more complex procedure.
When short selling stocks, investors borrow shares at the prevailing market price, hoping to replace the borrowed shares with new ones bought in the future at a lower price. If this does not happen, when the loan expires, they are forced to either renew the loan of shares (which costs a premium and requires a deposit) or liquidate the position. If the trade goes well, they can simply return the borrowed shares with new ones and profit the difference between the purchase price and the borrowed price.
When investors discuss short selling, they are normally talking about the above process with equity holdings. To short sell options, investors can simply ‘write’ or sell a call option or buy a put option. In spot FX trading each short trade is necessarily a long position in the other currency, so there is no formal process for short selling.
Equity markets require the holders of short positions to declare them and given the (theoretically) unlimited risk in an upwards movement, significant short holdings in a stock are normally viewed as a very negative sign for that company by the broader market. Short selling is a common tactic for long / short equity hedge funds and activist investors.
ADSS offers a range of global markets for traders, with CFD opportunities in indices, commodities, forex, equities and more. We also feature tutorials, how-to guides, and weekly webinars to help you navigate the financial markets and find better trading opportunities. You can start trading and investing online by opening a live trading or demo trading account.
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Investing in CFDs involves a high degree of risk that you will lose your money due to the use of leverage, particularly in fast moving markets, where a relatively small movement in the price can lead to a proportionately larger movement in the value of your investment. This can result in loses that exceed the funds in your account. You should consider whether you understand how CFDs work and you should seek independent advice if necessary.
ADS Securities LLC – S.P.C (“ADSS”) is authorised and regulated by the Securities and Commodities Authority (“SCA”) in the United Arab Emirates under First Category: Dealing in Securities and Fifth category: Arrangement and advice (Introduction). ADSS is a Limited Liability Company – Sole Proprietorship Company incorporated under United Arab Emirates law. The company is registered with the Department of Economic Development of Abu Dhabi (No. 1190047) and has its principal place of business at 8th Floor, CI Tower, Corniche Road, P.O. Box 93894, Abu Dhabi, United Arab Emirates.
The information presented is not directed at residents of any particular country outside the United Arab Emirates and is not intended for distribution to, or use by, any person in any country where the distribution or use is contrary to local law or regulation.
ADSS is an execution only service provider and does not provide advice. ADSS may publish general market commentary from time to time. Where it does, the material published does not constitute advice, or a solicitation, or a recommendation to a transaction in any financial instrument. ADSS accepts no responsibility for any use of the content presented and any consequences of that use. No representation or warranty is given as to the completeness of this information. Anyone acting on the information provided does so at their own risk.
