Operation Short Sell - Trade with air?


As you know, in recent years, it brings a steady income portfolio asset management (which includes items such as hedging, diversification, etc.), which allows for the inevitable losses on one asset still gain some statistically income on other financial instruments .

For example, a trader buys with the margin 1 lot AB shares at $ 20 apiece and sold "bare" one lot of shares to the AU $ 30 per share. Suppose that for a source and a minimum level of margin - 60% and 30%, respectively. Suppose that over time the stock market AB is $ 10, and AC - $ 40, that is both open positions were unprofitable. In this case, the broker will assess the state of the trader's account and, if necessary, immediately make margin call. In general, the amount needed to cover the purchase with a margin equal to the cost of the loan divided by the difference between 100% and the minimum required level of margin. In our case, the purchase of shares in AB it is 100 x 20 x (100% - 60%) / (100% - 30%) = $ 1143. Amount required as security operations Short Sell stock AU is equal to the current market price, multiplied by the amount of 100% of the minimum required margin level. Sold for AU this value will be $ 40 x 100 x (100% + 30%) = $ 5200.

As a result, the total amount of the purchase and sale of "bare" with the margin in both cases is $ 1143 + $ 5200 = $ 6343. This amount exceeds the current rate of assets on account of trader (in our example, $ 5000), so he had earlier called upon to maintain the level of the actual margin.

Example of a portfolio

For clarity, we consider the process of building a portfolio of assets of the stock market. Thus, in the field of computers some of the best financial performance are owned by the Gateway (GTW). The figure shows the weekly charts of stock prices GTW and Medtronic Inc (MDT).

The stock market GTW, as can be seen from the figure, to the middle of May 2000 rather slowly descend. Thus was formed a complete cycle of Elliott Waves. Then resume the bearish trend for the third wave in order to $ 30 or even $ 20 for 1 share, which was followed by a turn downward curve moving average mA (5). Where mA (5) has just crossed mA (21) top-down, thereby submitting a sell signal. Stochastic Oscillator is moving down, and its fast curve SSK is approaching oversold. MACD just starting to signal to sell, maintaining a bearish market sentiment.

It became clear that for the stock GTW an opportune moment for a short position on the trend. So right now you can place an order in the market Short Sell GTW - suppose we sold the lot at $ 55 1/2 each.

The stock market MDT - corporations belonging to the medical equipment industry - we have included as an emergency option to open a long position. By the statements of a number of analysts, the sector of medical devices remains a potentially attractive long-term investment.

As you can see, in this market formed a bullish trend. After the completion of the third Elliott wave in May 2000, is the formation of the 4th wave. The purpose of this wave is already achieved, so that the end of its construction - a matter of weeks. Then resumes the bullish trend of wave 5 in order to $ 65 apiece. Stochastic Oscillator is trying to signal to purchase formed the closest minimum was higher than the previous one, and besides, SSK fast curve begins to cross the slower SSD curve upwards. MACD continues to support the bearish market sentiment.

It becomes clear that buying shares MDT bit early, but if we consider the process of diversifying our portfolio through the purchase and sale of various assets in one segment of the financial market, it is possible to buy the lot MDT shares at the rate of, say, $ 50 a piece. Thus, the sale of securities "bareĽ (Short Sell) on the stock market or in any way be considered as a simple trade-air. Except in a few moments (tightening margin requirements, control the total volume of transactions, etc.), this operation is the link between the stock market participants with different investment horizons. This increases the liquidity of traded financial instruments.

If this type of operation makes you continue to mistrust and misunderstanding, between the fall of the stock market, you can switch to other segments of the financial market, such as the foreign exchange market. As you know, in the conduct of trading in FOREX is no fundamental difference between the buying and selling of currencies, that is the problem Short Sell orders are automatically removed.