How not to depend on the direction of the market: shorts and longs
As part of the master class: "The stock market. Knowledge Slice".
So we found out that stock dividends are a good thing. But the main income for stockbrokers comes from changes in the price of shares. How do you take that profit?
The market is always growing
Everyone has a different approach. Investor tries to buy shares cheaper, and is willing to wait a long time for a profit, but he will have to endure a lot of market adversity. The Speculator is not ready to tolerate even the risks of one day or one week and makes many deals during the trading session, earning on the rise and fall of stocks. It is worth explaining that the investor is not technically barred from working downward, but is there any sense in it when in the long term, the market is always growing?
Shorts and longs on the stock market
Nevertheless, it is important for all traders to learn the basics of playing up and down securities. С working on growth (with "longs") There are no traditional questions, you buy cheaper and sell more expensive, that's your profit! If you wanted more profit, you borrowed money from your broker and bought more shares. С work on the reduction of the share price (with "shorts") traditionally there are problems. "Shorting" is the sale of shares that you don't have on your account. You sell "other people's" shares for 5 rubles, buy them back for 3 rubles, the shares go back to the broker, and you pocket 2 rubles of profit. You don't have to go anywhere, you don't have to sign any additional documents. You sell the shares while they are expensive, and then you buy them when they get cheaper!
We often hear the question:"Why would I be charged a commission for "shorting" my funds - am I "sitting" in mine?". Don't get confused - you only have your own collateral for a "short". And the "short" itself is an operation where you borrow securities from a broker and sell them. "Longs" can be own and borrowed, because you can buy shares with your own money and still use borrowed funds if you want to, while "shorts" are always borrowed.
Understanding that you can make money on the falling market, you can evaluate a number of indicators and securities differently and become a successful speculator.
From practice, it is possible to do without taking money for "long", even with aggressive strategies. But sometimes all ideas to work on growth are exhausted: there are no more "second-tier" securities that look ready to "shoot" against the market; bonds look like something foreign and unexplored and even gold contracts do not arouse investors' interest. Instead of going through assets, especially those that you have no experience with, wouldn't it be easier to bet on the weakness of a security you know well.
Rules for working with borrowed funds
When using borrowed funds in your trading strategy, follow a number of simple rules:
– Perfectly study the terminal and keep an eye on the margin level (the ratio between own funds and borrowed funds). After all, if it reaches a critical value for your account, the broker will close some of your positions.
- Before the transaction with borrowed money Determine the levelsat which the loss will be marginal for you. And fence yourself off from irrational hope with a mechanical protective pause.stop loss" (an application that fixes your loss at a certain level, whether you are at the terminal or not).
– Don't hold the position too long.. If you correctly predicted that the market is weak - the profit on the "short" will not be long. Determine the waiting time for this profit.
– Don't go all-in! You pay only for the part of the funds you borrow. Open a leveraged position gradually, as soon as the market shows you are right - a "short" or "long" position taken on borrowed funds is elementary to build up.
Most importantly, such borrowing transactions require special training, a clear vision of your strategy and time. So do not take a lot at once, act gradually. Part of the account is worth defining under investmentsand the other part to implement speculation. If one of the strategies is difficult for you, or you do not have time to be on two fronts at once, then professionals will always help you. The main thing is to study the main subtleties of the market in order to understand who to trust and who not to. This is what we will continue to do in future articles.