Shorting individual stocks | Aussie Stock Forums

I’d like to summarize the ways of making money on individual shares during price declines. In the perfect world, it would be like a stock: can hold indefinitely; costs you nothing to hold it; can buy small and medium caps. I’m presuming no such thing exists for shorting, but as close to my wish list as possible.

Options I know of are:

  • Directly shorting the stock
  • Shorting CFDs of the stock
  • Shorting Futures of the stock
  • Buying Put Options

If there are other viable options, please list them.

I’d like for you guys who preferably have a good knowledge of these options, to rank them on the following criteria.

Scenario: You have $10k to short a stock. You want the option to hold that short for a year. You can easily buy in or sell at any time, so good liquidity. Ideally, you have the option of shorting a medium (or small cap), but I understand I mighn’t get that wish. You’re not wanting to leverage this any more than you have to. This isn’t a hedge against an existing stock.

What I’d like to know is:

  1. Which of the methods above allows this or comes closest?
  2. Which methods are the lowest cost? What would the approximate cost be for each method?
  3. Which methods are the safest: low counterparty risk, broker not artificially manipulating the market (eg: CFDs)
  4. Which methods are safer by limiting the amount of money you could lose if the stock goes up in price? (For instance, buying puts you only risk your initial fee.)
  5. Relative ease of use for someone new to the instrument. As much as possible, your existing knowledge of how to invest in shares should be relevant to this security
  6. Liquidity. How easy is to get in and out of these positions?
  7. What „universe of shares“ does each method give me? Am I limited to just the 86 stocks that broker has chosen?
  8. Can I short small caps with this method?

I’ll contribute what I know:

  • Directly shorting the stock requires you to pay any owed dividend, so mightn’t be a good idea for a long term hold
  • Puts and Futures have expiry dates.
  • Puts are relatively safe, since the most you can lose is the down payment.
  • Options market doesn’t have good liquidity in Australia
  • I’ve heard all good derivative traders eventually move to futures. I don’t know if this is true.
  • CFDs seem to have a lot of on going borrowing fees.
  • With stock shorting, you’re limited to the actual shares the broker has access to

If people with broad experience across these options can identify the best method that satisfies my objective, and preferably flesh out the details.


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