How to short a market and when to go short

How do you short different markets?

Now that we understand the concept, let’s delve into the basics of short selling in different markets.

Stocks

Short selling in the stock market, such as Apple or the S&P 500, can be more complex and potentially costly compared to short selling in the Forex market. Brokerages may require margin accounts to short stocks and most require 100% margin or even more, meaning you need to put up the full value of the stock or even a higher amount as collateral. Additionally, you may have to pay interest on the borrowed shares since the brokerage, as a lender, is maintaining the exposure for you. These costs can add up and impact your overall profitability. However, the principles of short selling remain the same for shorting stocks – traders profit if the stock price drops and experience losses if the share price rises.

Derivatives

Options and futures trading have similarities to short selling stocks. Options are derivative tools that allow you to trade on various markets, including stocks, ETFs, commodities, and foreign exchange pairs. Options trading provides several ways to gain short exposure including selling calls and buying put options. These strategies can be beneficial for short-term traders preferring defined risks. Trading options can involve margins between 20% and 100% of the market value, and they may come with commissions. Futures, on the other hand, have variable margins that change with market volatility. Forex futures, similar to forex trading, tend to have lower margins due to their relatively stable price movements. While options and futures may not have interest charges, they may have commissions or other associated costs.

Spot forex

Forex trading provides a slightly more dynamic logic in short selling. By shorting or selling a forex pair, you are actually going long one currency while shorting the other simultaneously. By this logic, even going long in forex has an element of going short. Take GBP/USD for example – buying the pair would mean going long British pound while shorting US dollar. Conversely, shorting GBP/USD means you believe USD will appreciate against GBP – and the pair price will decrease.

Shorting forex pairs can be done with low margins, starting from just 2%. Additionally, trading forex with IG means zero commissions*, with the bid-ask spread the only cost to execute a trade.

Find out more about forex costs



This article was originally published by a www.ig.com . Read the Original article here. .