Short selling, a help or a hindrance? I am not talking about individual traders who enjoy the ability to short sell shares, I am referring to the existing shareholder. Whilst existing holders may not want anyone shorting their shares on a certain level, if the shares are shorted, and the shareholder has done their homework, then they should know when the shares have become good value and can buy more accordingly. Of course it is annoying when you want to sell the shares yourself and others are already forcing the price down.

It is interesting to see that the FSA are still hunting for someone to blame over the HBOS debacle. Perhaps they have not looked at the share price since the fateful 19 March. On that day the stock hit a low of around 400p but then a huge swathe of investors, small and large, bought in on the news that the Board was insisting that they had no problems. Even the Bank of England and the Financial Services Authority popped up to lend support. The price then rallied to 615p. Now, though, we know better. For the last 3 weeks or so that stock has been stuck in a 260p to 280p trading range. That is more than 55% down. Imagine if you were the trader buying at 615p. So who is the enemy of the investor, is it the short seller who in this case gave a very good early warning to anyone holding the stock or is the blame better attributed elsewhere.

Trying to force a share price lower via a bear attack can be a very dangerous activity for the participants as they can easily get caught the wrong way round. A badly conceived strategy can lead to a concerted move by Market Makers or a Stock Lending moratorium by major holders which can easily lead to a spike higher which forces the shorter to take a major hit.

Sudden takeover rumour also causes havoc for shorters.

Looking at the Alliance and Leicester / Satander deal there has been a slightly different reaction. No one felt sorry for traders shorting via borrowing stock, placing CFDs, spread betting or otherwise. There was a lesson for everyone on the Friday that the possibility of a deal was announced. Some £150m was probably lost in just a few minutes by funds betting on continued weaknes. Alliance and Leicester shares were one of the most heavily borrowed stocks on the block. The price opened some 40% higher from the close on the Friday and traders would not have had a chance to get out of their positions. The shares rallied to well above the Santander offer. Anyone shorting was forced to cover their position at any price.

Readers should always remember that anyone can take advantage of being short via a huge array of instruments. Buying Put options, Selling Calls, selling stock and borrowing, Selling CFDs or, most simple of all, just selling a market via Spread Betting through companies like Financial Spreads. It is not just the larger funds who can take advantage of an inflated share price.

Whilst it can be a profitable form of speculation in today’s bear market, selling a share or commodity does have its risks. Just like buying shares and commodities have their risks.

Financial spread betting carries a high level of risk and may not be suitable for all classes of investor. Only trade with money that you can afford to lose. Make sure you fully understand the risks involved. If necessary, seek independent financial advice.



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One of things I often discuss with other spread bettors is what to do when they are winning.

The question is often accompanied by an element of surprise. Yes, financial spread betting can catch out the unwary but there are lots of ways to reduce your trading risk these days like using:

1) Stop Losses or Guaranteed Stop Losses. These help close bets that are going wrong

2) Smaller Stakes. You can trade $1 or £1 per point on the FTSE, Dow Jones etc

3) Limit Orders. These help close your bet when you are winning and have reached a profit level you are happy with

4) Live Charts. These provide historical as well as up-to-the-minute trading trends

However, the question still pops up. What should I do when I am winning?

That clearly depends upon a lot of factors and as the adverts say, you should consult an independent financial adviser when necessary.

However I can point out a few things to watch out for. You might be a Star Trader. You might not. Either way most spread bets are a two horse race and you win or lose. With any such set of events, like tossing a coin, if you do it long enough you will hit a series of wins.

You may also have had a good few losing streaks along on the way.

Some of your ‘wins’ will come through luck. In the past, despite thorough research, I have sometimes benefited from external market factors like New Analyst Recommendations, Directors Buying Shares, Increased Dividends, Takeover Rumour etc.

All of these things and many other factors can help produce a winning sequence of trades. A lot of these things can also help convince you that you are, indeed, a Star Trader. However you hit your winning sequence try to ignore your ego and remember how you got there.

After a bit of luck, you will often be tempted to:

1) Increase your stake size

2) Not use stop losses

3) Trade more frequently

4) Trade markets you are less familiar with

5) Trade after less research

In reality though, you need to stick to your trading strategy. If your strategy needs altering, that is fine. But any such changes need to be thought through.

One of the most common errors is increasing your stake size (coupled with less research).

You may accept that you are increasing your risk but you are also changing other variables eg how you trade. Most investors trade best when they are calm and rational. Or at least rational. If you increase your stake sizes you can easily lose your head and alter your trading style. Probably for the worst, ie closing winning bets too quickly and trading losing bets for too long.

Less research will only exacerbate any irrational trading behaviour due to a lack of information.

Also, whatever you do after your winning streak, do not forget to put some funds to one side for when your trading is going less well.

In summary, enjoy your winnings, keep your head, plan any changes and do not try to give your money back to the spread betting companies as quickly as you can.

Spread bets carry a high level of risk to your money and may not suit all forms of investor. You can lose more than your initial investment so make sure you only speculate with capital that you can afford to lose. Likewise make sure you understand the risks involved and seek independent financial advice where necessary.



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