Skip to main content

Short selling back with a vengenance

This week saw the return of the short selling and Hedge funds and the market did not go unscathed with some australian stocks in free fall.

Soon as short selling was back the short sellers did not feel shy of bringing down some of their favorite stocks like Maquarie bank and westpac bank. The resources sectors were spared from their wraths. So times are not really looking good again for those companies with high debt and unbalanced balance sheets ,beware the short sellers are here and the hedge funds are back in business.

The financial sector tumbled 2.5 per cent on 25 may after the corporate regulator lifted its short selling ban this morning.

short seller

Results of lifting the short selling ban

Funds manager Perpetual experienced one of the biggest falls, down 8.9 per cent to $30.00; fellow funds manager AMP fell a more modest 3.8 per cent.

Reputed short selling target Macquarie Group was down 6.6 per cent to $31.28 - a little bit more than $1.00 below where the stock was immediately prior to the short selling ban being introduced.

Westpac was hit hardest among the big four banks, falling 3.61 per cent, while ANZ fared best, down only 1.4 per cent.

Unlike other share traders, short sellers do not 'own' the shares they sell. They sell them hoping that the price will fall before they have to hand over shares in settlement of the sale. That's how profits are made.

For example, there's a share on the ASX valued at $5. The short seller thinks the price of this share will go down, so the short seller goes onto the ASX and enters into a contract to sell that share. In order to settle the sale, the short seller might then buy a share in the same company and use that newly bought share to fulfil the contract.

Among australian stocks Property trusts like stockland and GPT and financial group challenger were also recently targeted by the short sellers. At the same time it might be a bit of a risky play for the hedge funds and short sellers to be shorting stocks when the stock market has been rising in past months.

  • If the short seller ends up buying the share at $3.00, the short seller makes a $2.00 gain. This is because the short seller had agreed to sell the share at $5.00.
  • But if the short seller has to buy the share at $7.00 in order to fulfil the sale contract, the short seller makes a loss of $2.00.

short sellers team

Naked short selling is effectively banned in Australia, with some exceptions. Naked short selling refers to when the short seller does not own the stock and doesn't have in place a prior arrangement to deliver the stock that will settle the sale.

Researchers says that short selling is not necessarily bad , but also helps regulate the unjust market prices of some overpriced stocks

[PDF]

Understanding 'Long', 'Short' and 'Short Selling'

Australian Securities and Investments Commission - Short selling

Popular posts from this blog

Best Australian stock forums online ( finance forums)

Many traders and investors use forums to share ideas, learn from the more experienced, or simply to stave off boredom during long hours at the computer. Here we list the known universe of forums, complete with costs, member numbers, extra benefits and popular forum topics. Please post a message on Your 2 Cents if your favourite forum isn't listed here, or if you feel that there's more to add about the day-to-day goings on in your online community.Forum
Cost
Stock comps
Forum areas
Comments
AussieStockForums.comFreeASX by share code, General, Beginners, Derivatives, Commodities, International, Strategies/SystemsEasy to use, independent forum. Aussie Stock Forums has a group of very active and knowledgeable traders. Private messaging available. Australian forum.
Chimes in ExileFreeASX stocks, fundamental analysis, technical analysis, commodities, economics, investment tools The forum has a small group of regular contributors that form a genuine community of investor…

List of Australian blue chip stocks

Australian shares gained 0.6 percent on Wednesday led by blue chip miners and financials on strong resource price


The biggest Blur chip stocks traded on the ASX, in terms of their market capitalisation, include:
BHP BillitonCommonwealth Bank of AustraliaTelstra CorporationRio TintoNational Australia BankAustralia and New Zealand Banking GroupRio tintoWestpac
The only stock to do worse than the S&P/ASX 200 is Harvey Norman Holdings Ltd [ASX: HVN]. Even so, it’s a better-than-the-bank 8.3% gain. The others have done much better: Qantas [ASX: QAN] up 36.1%; JB Hi-Fi [ASX: JBH] up 20.5%; Toll Holdings [ASX: TOL] up 25.3%; and Myer Holdings [ASX: MYR] up 37.1%. The benchmark S&P/ASX 200 index rose 27.1 points to trade at 4,977.3 by 2310 GMT. It fell 0.8 percent on Tuesday, its lowest close since February 7.

The diggers and dealers forum meet 2011

The diggers and dealers forum has just begun August 1. Its a three day annual event happening every year  at the WA country town of kalgoorlie.2011 Diggers & Dealers forumBig name brokers  keenly watching the event will be MacquarieDeutsche BankBell PotterGoldman SachsRBS MorgansEvans & PartnersHartleysBlack Swan Euroz.Well most other websites will give you the  finer details of the annual meet and greet that happens at kalgoorlie , so we will just stick with the bare minimum of details  and focus on the more enjoyable bits  of information that the dealers require to strike a good deal while in town.Bare detailsWebsite : Diggers & DealersEvents : Program and scheduleWatering holes and entertainment at Diggers and dealers forumPubs , clubs  and skimpy (barmaids) culture in kalgoorlie . There are about 25 pubs in Kalgoorlie-Boulder area and for a city that stretches just 67sq km the number of pubs makes for  a good choice on drinking holesand entertainmentExchange Hotel ( Pa…