Short selling happens when a trader borrows financial instruments and sells them immediately, hoping to repurchase them later at a lower price. He then returns the shares to the initial owner and pockets back the difference. As a short seller, you speculate that the price will go down further so that you repurchase it at a lower price. However, the asset’s price can rise to infinity, and you may have to bear the loss.
Popular Instruments in Short Selling
One main benefit of short selling is that you have access to a large market base; you can short sell almost everything, including financial assets, stock, commodities, indices, shares such as tesla, and cryptocurrencies. Although some commodity prices may record an increase in value, only a few can maintain a smooth curve, and you will always note a significant fall in prices that you can capitalize on. Here are some instruments used in short selling.
Go either long or short with Shares
It’s a popular asset for short-selling where investors borrow a company’s shares and sell them at the current market price, hoping that prices will decrease in the future. Conditions remain that you need to return the stocks to the company at some point. Shorting shares is a straightforward process, but you need to be a little more careful. If the value of the stock declines below a certain level, you might get subjected to margin calls meaning that you might sell the position. One perfect way to choose significant shorting shares is by picking up those companies recording disappointing profit trends. You can also consider those stocks that can get susceptible to profit takings like overbought shares or those that have already begun to fall.
Where is Oil heading?
Crude oil has an excellent position in the world’s global economy and is thus a perfect trading opportunity in short selling. In recent years, the industry has recorded an increase in volatility, providing significant profit margins for short-sellers. To gain a perfect short-selling position in the oil market, you need to understand all the forces that affect demand and supply. Note that oil has limited storage capacity, and moving surplus amounts is nearly impossible. If oil production exceeds the storage volume, the prices can decline to balance supply and demand. Oversupply and reduced demand encourage price declines, and the significant downtrend creates a perfect chance for short selling. At the same time, many find that oil might be undervalued at current prices and believe it’s an excellent time to go long in oil instead.
Silver: Over- or undervalued?
It is another commodity popular for short selling due to its tight spread and high trading volumes. It’s highly volatile with significant market swings making it a perfect asset in shorting. Silver also has a wide range of industrial use, which subsequently affects its demand and supply. Considering the high degree of industries shutting down at the moment, the demand might decrease for silver. But it all depends on the length of your position and what you believe in: Will the economy bounce back quickly and are you a medium term investor? Or do you rather believe the economy will be hit for a longer period and see shorting silver as a more long term trend?
The precious commodity silver offers multiple trading strategies, and you can quickly identify a downtrend. Also, it’s a slightly cheaper commodity, accommodating even the lower capitalization investors. You can invest in the movement of silver markets through futures and options or take the short position for both hedging and trading purposes, protecting you from the counterparty risk. One of the major reasons that people love to go long in silver right now, is because gold is so much higher valued and that different in price might not be justified.
Gold: The most precious metal
You can also benefit from the fall in price for gold commodities by taking a short-selling position in future markets. Getting into the gold market requires lower capital, and the precious metal’s volatility makes it an ideal option, especially for an investor willing to diversify their portfolio. However, you need to understand various factors that affect gold’s price movements such as the worldwide demand and supply, wealth protection rate, and value in a country’s currency. Regardless if you believe gold is going way higher or lower, you have excellent trading conditions for gold at Skilling. However, if you prefer MetaTrader 5 for your gold trading, then head over to NS broker instead.
Why is Sugar not Famous for Short Selling with CFDs?
Many regulated brokers such as capital.com, AvaTrade, and Plus500 offer CFDs on sugar where you deposit funds with the broker as margin to magnify your potential profit or loss. However, shorting sugar is difficult as it requires excellent knowledge of agricultural commodities to excel in the market. Many brokers avoid short-selling sugar since it’s a very stable commodity that does not quickly reduce in value. It’s volatile and can move without any specific catalyst, thus, leading to significant losses. It’s hardly possible to find a commodity that isn’t finance-based, primarily an agricultural product like sugar, hitting rock bottom, thereby making it unfavorable for short selling.
Shorting sugar has other risks, such as heightened concerns on weather changes since sugar is highly sensitive to climatic changes that could curb demand. It’s also subject to increased government subsidies, which could lead to oversupply against the available rate of the order. Health concerns can also affect sugar demand since people are now opting for substitutes. The commodity could also get affected by the US dollar strength.
Shorting is a popular trade technique among numerous investors, gamblers, and individual investors. Markets are easily affected by unpredictable events, and most investors are now taking advantage of declining needs. The above guideline outlines various valuable instruments in shorting that you can consider.