Cheapest method of shorting

[steve695]

Hi everyone,

Can anyone point me in the direction of any information about the costs involved in short selling stock using various methods? As far as I understand it, it's straightforward to take a short position using either futures, CFDs or a spreadbet but which is the best and why? The typical holding period would be anything from around 1 week up to 3 months.

I'm working on a University project that aims to determine how accessible short selling is for the private investor so of course trading costs are a key issue. Costs aside, I'm also hoping to look at tax implications, whether it's possible to short very small stocks and also any differences between the US and UK markets. The ultimate aim is to produce something that can be seen as an 'impartial guide' for the investor who is new to taking short positions.

More than happy to share all the information once the project is completed!

Thanks,
Steve

 

[LiamH]

Hi everyone,

Can anyone point me in the direction of any information about the costs involved in short selling stock using various methods? As far as I understand it, it's straightforward to take a short position using either futures, CFDs or a spreadbet but which is the best and why? The typical holding period would be anything from around 1 week up to 3 months.

I'm working on a University project that aims to determine how accessible short selling is for the private investor so of course trading costs are a key issue. Costs aside, I'm also hoping to look at tax implications, whether it's possible to short very small stocks and also any differences between the US and UK markets. The ultimate aim is to produce something that can be seen as an 'impartial guide' for the investor who is new to taking short positions.

More than happy to share all the information once the project is completed!

Thanks,
Steve

A reasonably uneducated opinion here as I've never traded stocks but I would assume that spreadbet would be the cheapest and most accessible. Spreads are often tight and there is no tax on the profit, rollover charges apply though so for longer term positions this will skew things a bit.

 

[HowardCohodas]

Use the search engine of your choice and search for "synthetic short stock." You will be exposed to a lot of approaches and their costs and risks.

 

[steve695]

Thanks guys.

After doing a fair bit of reading around it looks like spreadbetting / quote based CFDs are the cheapest but also carry an inherent risk in that the broker is the counter party.

To be honest, all the anecdotes about SB companies refusing to close out profitable trades, delaying and manipulating prices to their own end is scary stuff indeed for someone like me who has a lot of experience buying stocks but hasn't yet made a foray into any derivative markets. I'm not sure how widespread these dodgy practices are in reality...

Which leads me to believe that using a DMA CFD provider or using futures is the most sensible thing to do as long as your trades are of a sufficient size to keep costs down to an acceptable level.

 

[LiamH]

Thanks guys.

To be honest, all the anecdotes about SB companies refusing to close out profitable trades, delaying and manipulating prices to their own end is scary stuff indeed for someone like me who has a lot of experience buying stocks but hasn't yet made a foray into any derivative markets. I'm not sure how widespread these dodgy practices are in reality...

This is only really an issue for short term traders I think. Provided the SB company is reputable and you're not in and out of trades every few minutes you should be ok.

 

[sharanki]

transaction costs are the same for going long or short. The only thing that is different is margin requirements for equity trading.

 

[Brock Landers]

transaction costs are the same for going long or short. The only thing that is different is margin requirements for equity trading.

nope

 

[brettus]

transaction costs are the same for going long or short. The only thing that is different is margin requirements for equity trading.

eh? Was that a total guess?

 

[enragedcow]

costs depend on the country

for me (in New Zealand) CFDs are cheapest i can't seem to find any spreadbet broker that caters to NZ, not that I've really looked lol

from memory (since i don't trade stocks) i would pay $7 or 0.1% for Australian shares