The Short Way to Profits

I’ve just done a seminar for some quite experienced investors/traders. 

Out of curiosity I asked for hands up for anyone who had shorted shares or indices recently.

I was shocked. Only two people put their hands up. 

Two! And it has been a down market for quite a bit as I write this. 

Why not? Well, there weren’t really any clear answers. 

One of the answers I did get was, well, “it doesn’t feel right.” 

I can see that. We’re supposed to be buying things in a market, not selling them. It feels weird. 

But how on earth can you make money in a down market if you don’t try and short? 

The answer is, “You can’t!”. Even if you hold great shares, they might go down. The market doesn’t care about the quality of a share in a down market, it just wants out. 

Another benefit of shorting is, you can keep some of your favourite shares and make money shorting while waiting for them to come back. 

For example in a recent sell-off one of my ISAs with nearly £1.5 million it (I know, lucky, jammy git etc) had £70k disappear out of it just because everything got marked down. 

Was I worried? Well, I had made more than that 70k just in a FTSE short. 

If the market goes up, I can start taking profits in the short. If it carries going down I can short some more.

Ok, so it isn’t as easy as I make it sound, you do need experience. And you need to get stops into breakeven on indices when you can and get out fast if it goes the other way.

How do you short? Best way is spreadbet, it is cheap and taxfree. 

I use one firm in particular right now as the FTSE spread during market hours is only 0.8 pts. (Beware FTSE spreads outside of market hours as they can widen to 2-8 points). That’s https://www.spreadco.com/nakedtrader/

I also find them good for FTSE 250 shares but they are no good for smaller ones. 

If you want to understand how to short, you need my new book on spreadbetting, The Naked Trader Guide to Spreadbetting Ed 2, available on Amazon.

I cover all you need to know. I suggest you start slowly and carefully, see where you went wrong. Only when confident should you try to short to bigger stakes. 

You can also make money on the upside, for example the Christmas rally – there is a whole chapter in the book on this, and I will also cover that in my next column here.