Profit from Falling Markets
Short selling has received significant media coverage during the recent financial crisis, yet the concept of selling an asset that you don’t actually own can seem a little strange.
In times of volatile or downwards market activity, how can short selling enable spread bettors to profit when markets are falling?
Opportunities in declining markets
Many economic factors can cause a market to fall, and historically markets do not react well to uncertainty. This week, European markets tumbled as Standard and Poor downgraded Greece’s debt to ‘junk’ status. The euro traded near a one-year low against the dollar as jittery investors worried that a European Union-led bailout package wouldn’t be enough to stop Greece’s debt crisis spreading to neighbouring countries.
Stocks can suffer in a similar way, as seen in the recent controversy over Goldman Sachs’ legal battle. Despite a first-quarter net profit of $3.4 billion (£2.2 billion), shares have dropped 17% over the past two weeks. This slide followed the announcement by the Securities and Exchange Commission that it had opened a fraud investigation into the bank.
Yet, although it was bad news for Goldman Sachs shareholders, this decline opened up opportunities for spread betting on the stock.
Learn how to short sell
By correctly identifying the factors that will cause a market to fall, the spread bettor is perfectly positioned to capitalise when the decline occurs.
Markets can be traded in both directions: put simply, short selling is a way to position yourself to profit if you feel a market is going to fall. Unlike traditional forms of investment, with spread betting it’s just as easy to go short as it is to go long. You simply ‘sell’ to open your position, and ‘buy’ to close and realise your profit or loss.
Our chief market strategist David Jones has recorded a free online seminar to demonstrate how this simple technique can help you get the most out of falling markets.
To find out more you can watch the seminar now.
Take a position
If you have an opinion on the current or future prospects of a particular market, whether you think it will rise or fall, financial spread betting offers a flexible, tax-free* way to profit from movements in markets.
To help you keep an eye on the various factors that could affect the markets, we also provide a guide to key UK and US Economic Indicators, explaining their significance. Plus we provide details of analyst expectations and let you know exactly when the figures will be released.
* Tax law can be changed or may differ depending on your personal circumstances
Updated: 29/04/10