Yesterday we shared with you the prohibition of the CNMV to open short positions and how they had stopped the fall of the IBEX , we found it interesting to clarify what short positions are.
- Open short position : You bet because the stock market is going to fall. Either a specific action, or the IBEX, so that one makes money if the stock market actually falls, but… you will lose money if the stock market rises!
- Open long position : You bet because the stock market is going to rise, which is normal, either by buying shares, or investment funds, or derivatives.
- Leverage : Is use debt to finance an operation. Instead of carrying out an operation with own funds, it will be done with own funds and a credit. The main advantage is that profitability can be multiplied and the main disadvantage is that the operation does not go well and ends up being insolvent.
What are they:
- It is an instrument that investors use to obtain short-term profits
- They sell a security that they borrow, and then buy it back at a lower price
- You bet on the fall of the borrowed title, therefore you bet on the fall of the stock market
- The sale has to be carried out by an investor
- They are also used to protect a long investment at a certain time when it is thought that there will be a fall in those securities.
For example : We think that a certain share is going to go down, but we do not own that share, what we do is borrow those shares from the owner to sell them and once we have sold them, we buy them back at a lower price and return them to them. to the owner, our profit will be the difference between the sale price, the buyback price and the price we have paid to the original owner for the loan.
We leave you a video where with a very simple example you can clearly see what short positions are
Tools for shorting
There are several tools that allow you to get short, each with different characteristics; But they all have something in common: LEVERAGE , which is that you are speculating with more money than you actually put in. Going short does not pose a greater risk than going long, but leverage does pose a greater risk than buying stocks outright , so beware of these products:
- The simplest is the sale of shares on debit , that is, I rent some shares, I sell them and wait for their price to fall in the market, then I buy them back and return them to the lessor.
- The purchase of Put options (and by counterpart sale of Call options).
- Selling futures of an asset
- Taking positions in a vehicle that performs any of the above
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