short selling...CFD....ig markets

[jonboy123]

hi.
Im slightly confused.

I heard IG markets allow short selling.
But their site is only talking about CFD's.

Could CFDs be used on UK FTSE company stocks?

Can we short sell where we dont deal with CFD?

or is CFD the same thing as short selling a companys stock?

(im in uk and plan to use an online broker to short sell, if thats possible)

thanks.

 

[raysor]

hi.
Im slightly confused.

I heard IG markets allow short selling.
But their site is only talking about CFD's.

Could CFDs be used on UK FTSE company stocks?

Can we short sell where we dont deal with CFD?

or is CFD the same thing as short selling a companys stock?

(im in uk and plan to use an online broker to short sell, if thats possible)

thanks.

With a CFD the provider buys or sells in the market. You put up the margin and pay interest on the rest. If you go short you put up margin and receive interest on the rest. CFDs can be used on FTSE100 stocks and others (Long or short). The margin will be higher for non-FTSE stocks and sometimes prohibitively so.
Not many brokers allow short selling stocks, due to difficulty in having margin, risk management, and their own capital requirement.
CFDs probably best way to go, or traded options (buying PUTS)?

 

[jonboy123]

With a CFD the provider buys or sells in the market. You put up the margin and pay interest on the rest. If you go short you put up margin and receive interest on the rest. CFDs can be used on FTSE100 stocks and others (Long or short). The margin will be higher for non-FTSE stocks and sometimes prohibitively so.
Not many brokers allow short selling stocks, due to difficulty in having margin, risk management, and their own capital requirement.
CFDs probably best way to go, or traded options (buying PUTS)?

thankyou.

i spoke to a broker today(hoodless brennan, nice chap). and he told me the only way to short sell in uk is to go the CFD way....(and spreadbetting also). he said you cant just short sell FTSE shares....you have to do CFD.

 

[raysor]

thankyou.

i spoke to a broker today(hoodless brennan, nice chap). and he told me the only way to short sell in uk is to go the CFD way....(and spreadbetting also). he said you cant just short sell FTSE shares....you have to do CFD.

That's wrong. You can short sell FTSE100. It's just finding a broker who will do it for you.
Maybe not possible these days, but you could just short sell T+10 and not tell the broker you are short!
The rules in the brokers I know are that the brokers can't take short sale orders from clients) unless they have prior permission (from compliance and/or directors)/ Are you saying that there is a LSE/FSA rule prohibiting short selling? Obviously not if the CFD provider can do it!!

 

[jonboy123]

That's wrong. You can short sell FTSE100. It's just finding a broker who will do it for you.
Maybe not possible these days, but you could just short sell T+10 and not tell the broker you are short!
The rules in the brokers I know are that the brokers can't take short sale orders from clients) unless they have prior permission (from compliance and/or directors)/ Are you saying that there is a LSE/FSA rule prohibiting short selling? Obviously not if the CFD provider can do it!!

im just saying what the guy told me.
So another broker may allow me to short sell directly.
But the chap told me "you cant just short sell a companys shares, you can only buy shares...to short sell you have to do a CFD, here in uk".

T+10 = trade settlement period?

there does sound like there are rules govering shorting, as IG markets only allow shorting on some uk companies, and some they dont do. And shorting is illegal in some countries.
Sorry if im being annoying....im just trying to learn.

thankyou.

 

[raysor]

im just saying what the guy told me.
So another broker may allow me to short sell directly.
But the chap told me "you cant just short sell a companys shares, you can only buy shares...to short sell you have to do a CFD, here in uk".

T+10 = trade settlement period?

there does sound like there are rules govering shorting, as IG markets only allow shorting on some uk companies, and some they dont do. And shorting is illegal in some countries.
Sorry if im being annoying....im just trying to learn.

thankyou.

You are not being annoying. You remember the ban on short selling financials? You remember the ban ended in January sometime? Most brokers don't allow short selling, not because it is illegal, they just don't allow it. One of the biggets clearers, Pershing, don't allow, as a general rule, short selling. Pershing clear for a large number of brokers. As I say it's a combination of risk management and capital requirement. I believe for a short sale there is a double capital requirement from the broker. Their capital requirement is based on turnover. If they allowed everyone to short sell and they did it would double their capital requirement.
As I say it is not illegal, if you do a short sale via a CFD someone has to short the stock in the market.
In the US short selling is allowed but I think they have just re-introduced the up-tick rule. Don't ask me what that means exactly! I think in Europe they still have the ban on short selling financials, hence you can't short Banco-Santander, even here.
This is all academic, because you, as a client, will not be able to short sell equities, or in fact write uncovered options. The only way is CFD or SB (which is not share trading). Or buy a put option. Or buy a short covered warrant.
Of course you could do a covered short, but that's not a true short, is it?

 

[jonboy123]

You are not being annoying. You remember the ban on short selling financials? You remember the ban ended in January sometime? Most brokers don't allow short selling, not because it is illegal, they just don't allow it. One of the biggets clearers, Pershing, don't allow, as a general rule, short selling. Pershing clear for a large number of brokers. As I say it's a combination of risk management and capital requirement. I believe for a short sale there is a double capital requirement from the broker. Their capital requirement is based on turnover. If they allowed everyone to short sell and they did it would double their capital requirement.
As I say it is not illegal, if you do a short sale via a CFD someone has to short the stock in the market.
In the US short selling is allowed but I think they have just re-introduced the up-tick rule. Don't ask me what that means exactly! I think in Europe they still have the ban on short selling financials, hence you can't short Banco-Santander, even here.
This is all academic, because you, as a client, will not be able to short sell equities, or in fact write uncovered options. The only way is CFD or SB (which is not share trading).
Of course you could do a covered short, but that's not a true short, is it?

youre nicer than someone on another thread.
thanks.
sigh...man..... slowly im getting it.
right, so if i wanted to short sell UK FTSE stock, i would need to have CFD, so the hoodless dude was correct.
thing is, selftrade do CFD's, but selftrade told me they DONT do short selling.
But hoodless said they allowed shorting via CFD.

CFD sounds like....using Trade settlement period of T+3 etc, where you have some time before putting your money up. ie you never have to, if you cash out before the expiry date. right?
Leverage right? so T+3 is leverage....and CFD is leverage....and short selling is leverage.....

cheers.

 

[raysor]

youre nicer than someone on another thread.
thanks.
sigh...man..... slowly im getting it.
right, so if i wanted to short sell UK FTSE stock, i would need to have CFD, so the hoodless dude was correct.
thing is, selftrade do CFD's, but selftrade told me they DONT do short selling.
But hoodless said they allowed shorting via CFD.

CFD sounds like....using Trade settlement period of T+3 etc, where you have some time before putting your money up. ie you never have to, if you cash out before the expiry date. right?
Leverage right? so T+3 is leverage....and CFD is leverage....and short selling is leverage.....

cheers.

Now you are getting annoying. No, only joking!
A CFD is a Contract For Difference. So what happens is this. You want to buy 1000 Barclays at 160p. In the market you could buy 1000 Barclays at 160p and cough up £1600 and they're yours.
With a CFD you tell the CFD provider to buy 1000 Barclays at 160p. He goes to the market and buys 1000 Barclays at 160p , coughs up £1600 and puts the shares in his CFD account. He debits your account with, let's say 10% for the margin, i.e. £160 and essentially lends you the other £1440 at 2-3 points above base.
Ok, in this case there is no point in the CFD because soon the interest is going to outweigh the saving on SDRT.
If you know decide to buy 10000 Barclays at 160p but don't have the spare 16 grand then you can see the attraction of the CFD. As you rightly say you are gearing up. Yo stand to make 10 times the amount you would make on the traditional purchase. Also, however, the possibility of ten times the loss!
OK, so your reaso for using a CFD is not the gearing aspect but the ability to go short. So you sell 1000 Barclays at 160p via a CFD. You still need the 10% margin because of the risk of loss, but you are being credited with the sale proceeds (£1600) less the margin. On this £1440 you get base minus 2-3%. Whoops! That's minus something%
OK, so in normal circumstances you would get interest.
Got it?
There's no expiry date. You never own the stock, you just keep financing it (if long). SBs have expiries, as do options.
Don't you dare start trading until you understand this!

 

[raysor]

Tell me this Jonboy:
Tell me in your own words why you think a broker won't let you go short, just one main reason.

 

[jonboy123]

Now you are getting annoying. No, only joking!
A CFD is a Contract For Difference. So what happens is this. You want to buy 1000 Barclays at 160p. In the market you could buy 1000 Barclays at 160p and cough up £1600 and they're yours.
With a CFD you tell the CFD provider to buy 1000 Barclays at 160p. He goes to the market and buys 1000 Barclays at 160p , coughs up £1600 and puts the shares in his CFD account. He debits your account with, let's say 10% for the margin, i.e. £160 and essentially lends you the other £1440 at 2-3 points above base.
Ok, in this case there is no point in the CFD because soon the interest is going to outweigh the saving on SDRT.
If you know decide to buy 10000 Barclays at 160p but don't have the spare 16 grand then you can see the attraction of the CFD. As you rightly say you are gearing up. Yo stand to make 10 times the amount you would make on the traditional purchase. Also, however, the possibility of ten times the loss!
OK, so your reaso for using a CFD is not the gearing aspect but the ability to go short. So you sell 1000 Barclays at 160p via a CFD. You still need the 10% margin because of the risk of loss, but you are being credited with the sale proceeds (£1600) less the margin. On this £1440 you get base minus 2-3%. Whoops! That's minus something%
OK, so in normal circumstances you would get interest.
Got it?
There's no expiry date. You never own the stock, you just keep financing it (if long). SBs have expiries, as do options.
Don't you dare start trading until you understand this!

lol
dude....

you used CFD in example of BUYING shares. (i get it)
T+3 and T+10 is similar isnt it? you get to trade shares and NOT have to pay for them fully, if you make a profit and cash out, you never actaully BUY the shares.
"ten times the loss!"..... but if you put a stop loss on, youre loss is minimal, right? so you dont risk losing big.

im getting it....thanks for the help.

so we can use a CFD to BUY shares, ie going long, and cash out at profit when price rises.
Or we can use CFD to go short, ie borrow and SELL shares at current price, price drops, you make profit, BUY cheaper shares to give back to lender(broker)........
IS THIS CORRECT?

to open a CFD, surely they would do a credit check on you etc.
because when i opened a normal TDwaterhouse trading account, they did credit check and gave me a NIL trading balance. Although they advertise saying they give you £5k trading level/account (to those who qualify i imagine)

gearing is leverage?

thanks my man.

so CFD allows you to play with more shares than you can afford.
T+3 and T+10 allows you to do the same.

I did not know you could BUY shares with a CFD.....as simple as that?
say if i have £100 in my pocket.
I can open a CFD and buy £2000 UK FTSE shares.
When the price/value rises, i cash out and take the profits..............correct?
And as soon as it goes the other way, i put a stop loss or take the little loss.

 

[jonboy123]

Tell me this Jonboy:
Tell me in your own words why you think a broker won't let you go short, just one main reason.

i dont know man....
diff people are giving me conflicting info.
i dont think anything. Im only trying to understand here.

one reason? because they TOLD me literally that i cant short sell with them.

 

[raysor]

lol
dude....

you used CFD in example of BUYING shares. (i get it)
T+3 and T+10 is similar isnt it? you get to trade shares and NOT have to pay for them fully, if you make a profit and cash out, you never actaully BUY the shares.
"ten times the loss!"..... but if you put a stop loss on, youre loss is minimal, right? so you dont risk losing big.

im getting it....thanks for the help.

so we can use a CFD to BUY shares, ie going long, and cash out at profit when price rises.
Or we can use CFD to go short, ie borrow and SELL shares at current price, price drops, you make profit, BUY cheaper shares to give back to lender(broker)........
IS THIS CORRECT?

to open a CFD, surely they would do a credit check on you etc.
because when i opened a normal TDwaterhouse trading account, they did credit check and gave me a NIL trading balance. Although they advertise saying they give you £5k trading level/account (to those who qualify i imagine)

gearing is leverage?

thanks my man.

so CFD allows you to play with more shares than you can afford.
T+3 and T+10 allows you to do the same.

I did not know you could BUY shares with a CFD.....as simple as that?
say if i have £100 in my pocket.
I can open a CFD and buy £2000 UK FTSE shares.
When the price/value rises, i cash out and take the profits..............correct?
And as soon as it goes the other way, i put a stop loss or take the little loss.

Well you need a guaranteed stop loss, if you can get it.
There's a small article about CFD trading on Shareworld (Shareworld - Diary of a CFD Trader) might interest you.

 

[raysor]

i dont think anything.

You have to think, that's how you survive.
Think about what going long is and what going short is.
Think what the possible risks are with each strategy.
And then tell me why brokers won't let you go short.

 

[jonboy123]

You have to think, that's how you survive.
Think about what going long is and what going short is.
Think what the possible risks are with each strategy.
And then tell me why brokers won't let you go short.

brokers may not lilke shorting because THEY have to put up the money to buy or sell.
They are like vouching/fronting us.
If we cant keep up, it reflects badly on them.
But the broker makes money from interest and commission anyway, so maybe they dont care.

forget this.
MAn, theres alot of valid sensible queries ive just posted.
help a man understand man. in basic terms.


hang on:
"They are an agreement between you and the Provider to exchange the difference between the opening and closing value of the trade."
This means when we profit from a short sell, the broker GIVES us the profit..... and when we see rising value of shares = loss for us when short sell.... WE have to make up the loss and give more money to broker....

right?

 

[jonboy123]

CFD sounds good.
Ive been trading normal stocks in UK FTSE companies using online execution only type brokers.
I can do exactly the same thing but using CFD acccount i think.

Say if i have £100 to invest in stocks. I can just buy £100 worth of shares using a CFD, to go long on a trade.
Right?
But then i also have the option to short somehing....or use leverage/gearing when i feel comfortable.

Am i thinking correctly?

 

[raysor]

CFD sounds good.
Ive been trading normal stocks in UK FTSE companies using online execution only type brokers.
I can do exactly the same thing but using CFD acccount i think.

Say if i have £100 to invest in stocks. I can just buy £100 worth of shares using a CFD, to go long on a trade.
Right?
But then i also have the option to short somehing....or use leverage/gearing when i feel comfortable.

Am i thinking correctly?

Yes to the above.
But previous posts:
No I am not sure you are. Forget about who earns money, how, when and where they get it from. It's all quite simple. If you ask me, as a broker, to buy (or sell) shares I toddle off to the market and effect your trade to the best of my ability (that's the rules). Strangely enough I am "broking" or "facilitating" your trade and for that I would charge you a fee or commission. It matters not to me whether you "win" or "lose". However it is better for me if you win because you will come back and do another trade and pay me more commission.
If I am running a CFD operation, again you give me the order and I toddle off to the market and effect the trade to the best of my ability (that's the rules). For this I charge you a commission, as you would expect, but I also lend you 90% of the purchase money at an interest rate whereby I also make money (just like a bank).
OK, so there are some complications on the settlement side in respect of short selling but that's not for you and I to worry about.
Why not keep it simple? All you have to get right is the direction and possibly the time scale and to make sure that your profit will cover the expenses.
The market is made up of a few very clever people and many stupid (or inexperienced, unknowledgeable) people. The clever few will gradually accumulate profit and the rest will gradually lose money (unless they are very lucky). To succeed you have to have knowledge of some sort, and that doesn't necessarily mean intelectual knowledge.

 

[jonboy123]

thankyou raysor.... i do understand all you say, i do.

but.....please confirm.......

so we can use a CFD to BUY shares, ie going long, and cash out at profit when price rises.
Or we can use CFD to go short, ie borrow and SELL shares at current price, price drops, you make profit, BUY cheaper shares to give back to lender(broker)........
IS THIS CORRECT?

to open a CFD, surely they would do a credit check on you etc.

so CFD allows you to play with more shares than you can afford.
T+3 and T+10 allows you to do the same.

when we profit from a short sell, the broker GIVES us the profit..... and when we see rising value of shares = loss for us when short sell.... WE have to make up the loss and give more money to broker....
right?

WOULD THERE BE A DIFFERENCE IF
A) I BOUGHT SHARES THE NORMAL WAY, OUTRIGHT with a normal trading account.
B) I BOUGHT SAME AMOUNT OF SHARES USING A CFD

IS THIS THE SAME THING? (albeit slightly diff commission rates maybe)

 

[raysor]

thankyou raysor.... i do understand all you say, i do.

but.....please confirm.......

so we can use a CFD to BUY shares, ie going long, and cash out at profit when price rises.
Or we can use CFD to go short, ie borrow and SELL shares at current price, price drops, you make profit, BUY cheaper shares to give back to lender(broker)........
IS THIS CORRECT?

to open a CFD, surely they would do a credit check on you etc.

so CFD allows you to play with more shares than you can afford.
T+3 and T+10 allows you to do the same.

when we profit from a short sell, the broker GIVES us the profit..... and when we see rising value of shares = loss for us when short sell.... WE have to make up the loss and give more money to broker....
right?

WOULD THERE BE A DIFFERENCE IF
A) I BOUGHT SHARES THE NORMAL WAY, OUTRIGHT with a normal trading account.
B) I BOUGHT SAME AMOUNT OF SHARES USING A CFD

IS THIS THE SAME THING? (albeit slightly diff commission rates maybe)

Answers in order:
Yes
Yes. But don't worry about the borrowing of stock etc., the mechanics are taken care of by the CFD provider.
Credit check-yes. They should satisfy themselves as to whether you are financially sound, have experience of shares, derivatives etc. and understand the risks.

Yes CFD s are geared or leveraged products. T+3/T+10 etc. are just cash/stock settlemets. You trade on day 1 and own the stock on that day. You have x number of days to pay and for them to deliver stock. T+3 is the default settlement and anything else is extended settlement, for which you may pay more (in the share price). There will be broker limits as to how much collaterall you will need. For new clients brokers often require 100% collaterall or cash up front before they will trade.

Profit/loss; yes that's right except the broker is just a middle man so he doesn't actually give you the profit. Remember if you are trading T+10 you must (preferably) do the closing trade so the settlement coincides. For example buy T+10, following day sell T+9 etc.
Sometimes trades don't settle on time so you could be out of the money (rare).
Note SETs trades are always T+3

Differenc between normal trade and CFD:
Stamp duty (SDRT)
You don't ever own the stock on CFD (You cannot take it up unless you have made prior arrangements).
I think you only get part of the dividend on CFD if relevent (it's about 9/10)
Otherwise the mechanics are identical. As I have said the CFD provider buys/sells the stock in exactly the same way as the broker does in a normal trade. (obviously no need to buy T+10 in a CFD).
Also it depends who you are using as a provider. In some cases you can discuss with the provider which MM to use, or I have even dealt in the market and then got the CFD provider to adopt the trade as a CFD. But I don't think you, as a private client (retail) will be involved in that sort of thing.

 

[jonboy123]

Answers in order:
Yes
Yes. But don't worry about the borrowing of stock etc., the mechanics are taken care of by the CFD provider.
Credit check-yes. They should satisfy themselves as to whether you are financially sound, have experience of shares, derivatives etc. and understand the risks.

Yes CFD s are geared or leveraged products. T+3/T+10 etc. are just cash/stock settlemets. You trade on day 1 and own the stock on that day. You have x number of days to pay and for them to deliver stock. T+3 is the default settlement and anything else is extended settlement, for which you may pay more (in the share price). There will be broker limits as to how much collaterall you will need. For new clients brokers often require 100% collaterall or cash up front before they will trade.

Profit/loss; yes that's right except the broker is just a middle man so he doesn't actually give you the profit. Remember if you are trading T+10 you must (preferably) do the closing trade so the settlement coincides. For example buy T+10, following day sell T+9 etc.
Sometimes trades don't settle on time so you could be out of the money (rare).
Note SETs trades are always T+3

Differenc between normal trade and CFD:
Stamp duty (SDRT)
You don't ever own the stock on CFD (You cannot take it up unless you have made prior arrangements).
I think you only get part of the dividend on CFD if relevent (it's about 9/10)
Otherwise the mechanics are identical. As I have said the CFD provider buys/sells the stock in exactly the same way as the broker does in a normal trade. (obviously no need to buy T+10 in a CFD).
Also it depends who you are using as a provider. In some cases you can discuss with the provider which MM to use, or I have even dealt in the market and then got the CFD provider to adopt the trade as a CFD. But I don't think you, as a private client (retail) will be involved in that sort of thing.

thankyou so much...
T+3, if you cash out before the settlement date, you actually pay for the shares, you just take the profit.
that right, i had to pay 100% of trade with one broker in order to get the T+3 etc. Probably depends on credit rating.
In T+10 im assuming you can end the trade before the 10 days is up. Thats just the deadline.
Hoodless and selftrade dont allow T+3 etc.... im guessing only proper brokers allow this.

which MM to use? what is MM?

regards.

 

[raysor]

thankyou so much...
T+3, if you cash out before the settlement date, you actually pay for the shares, you just take the profit.
that right, i had to pay 100% of trade with one broker in order to get the T+3 etc. Probably depends on credit rating.
In T+10 im assuming you can end the trade before the 10 days is up. Thats just the deadline.
Hoodless and selftrade dont allow T+3 etc.... im guessing only proper brokers allow this.

which MM to use? what is MM?

regards.

If you were trading short term, and as you say with a bit of gearing you would be dealing T+10 (or even T+15). As you say if you "close" the trade before the settlement you just receive or pay on balance. So on T+10 the last day to "close" is nine days after the opening trade and you deal T+1.
Presumably an online system would do this automatically for you.
"Hoodless and selftrade dont allow T+3 etc" Is this a typo? T+3 is the default settlement.
I won't say anything about Hoodless-you can do your own research.
MM-Market Maker.Unless you have DMA (Direct Market Access) this is irelevant. If you look on the level two system you will see the SETS order book and the MMs (WINS-Winterflood,SCAP-Shore Capital, EVO-Evolution etc.) If you are dealing in FTSE100 presumably you will be dealing through SETS (order driven) unless you are extended settlement then I don't know how online works.
There is a bit of an explanation on Level 2 here Shareworld - Main Articles