What is an alternative for short sales

In contrast to the term or the foreign exchange market, where trading can be in any direction, short positions on shares are not always available. There are several alternatives to short sales of shares.

A game is not always possible in the stock market: financial regulation may impose a ban on opening short positions on real actions. In addition, the broker may not be required to open a position, and many securities in the second and third tier simply are not stored in depositories to conduct short sales. In this situation the trader who wants to profit from a declining market may use financial derivatives: put options, the inverse ETF funds or CFD-contracts.

Put options

Put option is a derivative financial instrument, which involves making a profit if the price of the underlying asset will fall. A put gives the holder the right to sell an asset to advance ugovorennoj price for a certain period of time, so if the price will drop over time, then the trader will receive profit. As an option implies the right to conduct operations, but does not commit to anything, if the price of an asset will grow and it will be unprofitable for the trader, he shall be obliged to make any deal, and his loss will be only option value.

Compared to the short position of buying a put option is a less risky investment. When short selling potential profit is 100% of the value of the shares if the company goes bankrupt and its securities will depreciate. The potential loss of "shortam" is not defined and could be tens of thousands of per cent, as the quotes can grow indefinitely. When buying a put option is simple: a trader either loses the full value of a financial instrument, or gains, which depends on the specifications of the contract.

For example, the trader can "zashortit" 100 shares of Sberbank, which costs 100 rubles apiece, spending on this operation 10 000 rubles. It can also buy 100 shares of Sberbank option with a strike price of 100 rubles, spending on the purchase of a derivative is only 200 rubles. If the shares Sbera start to grow, losses on short positions unknown: If the trader does not use stop losses on the transaction can be endless. When buying a put option stock player loses a clearly defined amount of 200 rubles.

Put options have lower operating costs and risks, and when using derivatives traders do not have to make any margin deposit or pay the owner of the shares. In addition, the chains are actively used for hedging against falling markets and under-implementation.

Reversible ETF funds

ETF Fund is a new investment instrument that combines the properties of stocks and mutual funds. Usually investment portfolio ETF funds completely copies the structure of the benchmark index, allowing investors to receive passive income from movements of the stock index. However, ETF fund shares are traded publicly on the stock exchange like standard shares, so traders use the ETF as a speculative tool.

There are many types of ETF funds, among which are reversible funds-ETF, mirrored display quotes for the selected asset. These funds are constructed using derivatives and allow you to make a profit when falling asset value. Despite the fact that the funds usually track good diversified basket ETF Portfolio can be correlated securities one industry, thanks to what investors can earn profits during the fall of certain shares. In addition, there are margin ETF funds that have built-in leverage and increase the profit in 2-3 times.

Buying shares reverse ETF funds has lower operating costs compared to short sales, but such financial instruments are not used to hedge long positions.

CFD-contracts

CFD-contract for difference of quotations, is purely speculative derivative financial instrument created for games on the dynamics of the prices of the underlying asset. The contract is concluded between stock players on transfer of the difference of the value of the goods at the time of expiry of the contract. CFD is absolutely repeats the movement of the underlying asset, and traders can freely sell or buy such contracts. This means that trading CFDs allows you to generate a profit during both market growth and during the fall.

The main advantage of the CFD as compared to classic short sales is low transaction costs and possible use of leverage. However, in case of sale of CFD on shares during the period of dividend payments with trader charge amount of dividends per share, which awarded the contract.

Conclusion

Short sale of shares coupled with high risks, limit who can be using derivatives and investment instruments. Unlike the "shorts" work with options, CFDs and ETF allows the trader to avoid this unpleasant situation as a "short squeeze. During compression punters start to rapidly close positions, buying their shares, thereby stimulating the growth of quotations and losses of other holders of short positions. In addition, the trader may at any time purchase option or CFD, while for "short" he is forced to borrow shares from a broker, which the latter may or may not be. Thus, the use of listed instruments allows you to earn money by selling the stock, not interacting with them directly.

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Автор статьи: Максим Миллер - о авторе.
Бизнесмен, инвестор, финансовый консультант Facebook
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