Investing Tools and Techniques: Short Selling and Ratio Strategies for Stock Market Magic

The standard approach to picking stocks is to try to guess which companies are going to increase in value over time. There’s an alternative approach you can take, however; it’s called “shorting” and it involves doing the exact opposite. Instead of betting on which companies are going to win, you’re trying to identify the ones that are going to lose.

Why Try to Pick Losers?

Shorting a stock is a means to make money when you feel certain that a company is going to lose value. It’s a particularly valuable technique in down (or “bear”) markets, when general confidence is low and stocks tend to be declining in value in an unusual way. They’re actually a big part of how hedge funds operate; the “hedge” in question is the use of a series of short positions as a counter to the longer positions in their portfolio.

Statistically speaking, shorting can be seen as a bit more risky than traditional investing as markets tend to trend upward more often than not, and since you’re effectively taking out a loan rather than holding the stock directly. It’s more than just a day trading scheme, however. Shorting serves an important market regulation function in keeping stocks from becoming too overvalued when an irrational “feeding frenzy” starts.

The process of due diligence in selecting stocks to short is really no different than in picking the ones you want to add to your long-term portfolio. So, for example, let’s say you were interested in investing in the solar power industry since that’s an area that has been expanding quickly in recent years and still has considerable growth potential. Scouring sites that cover news about solar, we learn that battery storage technology is making great strides and poised for a major breakthrough. If a specific company is about to introduce a revolutionary battery product, it might be a good time to short their direct competitors.

How Exactly Does Short Selling Work?

The basic concept is actually pretty simple:

  • Instead of buying the stock you are interested in outright, you borrow shares of it from a broker, with the promise of replacing that same amount of shares later.
  • You then immediately sell those shares at the current price.
  • If everything works according to plan, the stock then drops in value.
  • You then buy the shares back at the lower price and return them to the broker, pocketing the profit (minus fees and interest).

The Risks of Short Selling

Of course, the big risk here is that your expectations are wrong and the stock rises in value instead of falling. In this case, you are a bit more vulnerable than you would be if you were simply holding direct ownership of a declining stock. Since you’re borrowing the stock, you’ll have to pay interest on it over time, usually about 2%. Even if the stock does decline, it has to decline at a certain rate to keep up with your interest and any fees or it won’t be profitable.

Brokerages generally do not set a time limit for how long one can hold a short position, but they also usually have the freedom to demand the return of the shares at any time they choose. Naturally, they will call in the shares if the stock starts rising significantly from the shorted position value to protect their investment. This means you have less freedom to “ride it out” with a shorted position if things don’t go the way you expect, though it is relatively rare for a brokerage to actually do this (and will likely only happen if there is a very unusual and sharp increase in value).

It’s also important to know that not every stock is available for shorting. Usually, the smaller a company is, the more likely you will not be able to short their stock. This happens because smaller companies can be so negatively impacted by shorting that they will not be able to conduct enough business to recover from the loss in value it causes. The biggest regulation imposed in this area is the “alternative uptick rule“, which prevents further shorting of a stock that has dropped more than 10% in value in one day’s trading.

So What Is The “Short Ratio”?

If you look at major financial websites, you’ll often see a “short ratio” mentioned for each individual stock. The short ratio simply expresses the number of days it’s currently expected to take to cover all the short positions, but it also indirectly tells you the number of shares currently being shorted by investors as compared to the number of shares available overall.

How do you get the number of shares being shorted? It’s pretty easy — just multiply the current short ratio by the 30-day average daily volume of shares, a number also generally provided to you by the major financial sites.

Successful Shorting

Reading the short ratio to determine how a stock is going to move is a complicated topic that takes added knowledge about other circumstances the company in question is in. Generally speaking, however, you can use it as a quick gauge of investor sentiment towards a company. The most basic read is that a high short ratio often indicates general confidence in the stock is dropping. There are exceptions, however, and understanding those exceptions (and the circumstances they’re found in) is the key to successful short selling.

Eleanor Cole works as a personal finance consultant. She shares her wisdom online with her articles as well as participating on social media channels.

How Can The Choice of A Broker Influence Your Trading Experience?

Forex brokers are the people playing an important role in the foreign exchange market. Therefore, as soon as you make the first step in the career of a successful trader, you will come across the first task of choosing a broker that will not only suit you, but will be an honest and reliable partner.

Every month a new brokerage company with a wide variety of services, bonuses, services, and traders’ contests enters the financial market. The main task of the trader is to choose a reliable broker, which is trusted by a lot of people. Literally all Forex companies claim that only they are the best, and it’s not an easy task to make the right decision in this situation.

Choosing the best forex broker UK will provide the trader with a high level of trade security, fulfillment of obligations and comprehensive assistance from the client support which is crucial for Forex trading.

How Can the Сhoice of A Broker Influence Your Trading Experience?

Company experience

Make sure how the company of interest provides services in the financial market for quite some time. Reliable exchange intermediaries or Forex banks are companies with a positive history of at least three years. The longer the organization operates in the financial services market, the higher their level of professionalism, as well as the volume of tools and services provided to participants in financial markets.

A Forex company with experience is not always fair and transparent; you can also choose a new company that does its best for traders and earns a positive reputation and has an increasing flow of new customers.

Whether the company will remain at the same level depends on the business strategy it has built, whether it intends to continue working honestly or to instead directs its policy against the trader and starts making money using some shady methods.

Choose a Forex Broker Is Crucial

Licensed Forex brokers are certainly much more reliable and stable. After all, they work under the watchful eye of the regulator. Most of them are registered with the regulators of financial activities (hereinafter referred to as ROFD). However, not all ROFDs work to protect the interest of traders. In the summer of 2011 there was an unpleasant incident with a broker who did not have a license to provide brokerage services, and the company did not have registration in regulatory organizations.

When chatting, the employees said that the company was at the stage of reissuing the license, but as it turned out, FXCompany was deprived of the license of the Financial Services Commission (FSC) on May 25, 2010. This company’s actions inflicted serious damage to the financial reputation of Mauritius.

The handling of the claim in KROUFR also did not provide a positive result. The end of the activities of FXCompany, in addition to its license withdrawal, led to the re-branding in FXVan, the history is not much better due to the bankruptcy of Boston Prime and BT Prime which were regional brands of a major liquidity provider called Boston Technologies. In both of these cases, the re-branding of FXCompany in FXVan and the complete cessation of FXVan’s work, traders lost their deposits irrevocably.

Choosing a Forex Broker may be a pivotal step for any trader willing to try their strength on Forex market. Carefully consider all the options before making your decision!

How to Make Money on Your Old Car

Many car owners reach a point where their vehicle no longer suits their needs. The time comes we must say goodbye to our old clunkers, and if you have a beat up vehicle just wasting space in your driveway, it’s time to transform that old hunk of metal into a pile cold hard cash. Learn how to make the most money from your old car.

How to Make Money on Your Old Car

Trade It In

If you’re looking for ease, you can trade in your car at the dealership when you’re looking for a new one. It’s important to take your car’s age into consideration. The older a car is, the less trade-in value it will have. Before taking it into the dealer, be sure you do your research on a site like Kelley Blue Book. Keep in mind that if you owe more on your car trade-in than the dealer is apt to offer you, your chance of negotiation is much more difficult. When it comes to getting the most for your trade-in, timing is everything. If you live in an area with cold, rainy winters, don’t trade in a convertible in December. It’s important to stay up on the latest trends in cars, as the more desirable your style of car is at that particular time, the better deal you’re bound to get. If you’re buying a new car, don’t treat the trade-in as part of your purchase transaction. Always negotiate your new car purchase and vehicle trade-in separately, with the trade-in coming first.

Sell It Privately

To make the most money out of your car, your best bet is to attempt to sell it privately. There are definite drawbacks to this method. You’ll have to deal with your fair share of scammers, buyers that can’t seem to make up their mind, and a much longer timeline. However, if you’ve got time on your hands and have the patience for it, you can sell your car privately on sites like Craigslist for way more money than you’d get from a dealership or car buyer. Be sure to keep yourself safe and always meet with buyers in public, well-lit places. Car buying scams are common, so ensure you’re protected before meeting up with a potential buyer.

Sell It Online

Not looking to deal with the waffling private buyers and don’t want to try your hand at Craigslist postings? If convenience and speed is your top concern, consider selling your car online to a car buying company. Sites like www.carbuyerusa.com will provide you with an instant offer; just answer a couple of easy questions online and they’ll give you a number. If you don’t like it, you don’t have to take it—no questions asked. These companies take the cake in terms of convenience. They can often send a buyer right to your house to check out the vehicle and then haul it away on their dime the very same day.

Sell it For Scrap

If your car is far past gone, and you don’t think you can find a buyer willing to take it on, you can still get the most out of it by selling it off by parts. Unless you’re a car wiz, you won’t want to take it apart by yourself; improper removal can ruin the parts and make them impossible to sell. The most valuable salvageable parts tend to be the wheels, axles, lights, engine parts, and glass. If you don’t want to do it yourself, you can always sell your car to a junk yard, but know that you’ll be getting less of the value thanks to the convenience.

Sell Your Car For Scrap

If you’re looking for ways to make money off of a car you no longer need or use, keep these strategies in mind and turn that old beater into a small fortune. After all, one man’s trash is another man’s treasure.

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