In the past two years, even in the bear market of sales of securities "without cover" markedly inferior to those conducted purchases.
Apparently, this is due to stringent rules of trade "without the covering, do not allow the trader to sell at the best, from his point of view, at times, as well as to the mentality of a certain part of market participants who do not want to trade the air and contribute to the further decline of the market.
"No cover"
Sale of Securities "Uncoated» (Short Sell) on the stock market often causes confusion among beginners. Indeed, if you only sell on a trend, based on the known principle of «trend is friend», how to behave in bear market trader? It is clear that in a falling market is an urgent need to sell all the assets. What next? Sit back and wait for the market will develop up to re-purchase the assets at the lowest prices?
In order to increase liquidity traded on the stock market assets, and attract more investors to its market participants and the relevant inspection agencies have agreed in principle possible in the stock market to sell financial instruments "no cover", ie without their physical presence at the trader.
Of course, that corporations were not happy with this decision because they believe in a falling market, a large army of speculators who trade with the trend, can significantly exacerbate the situation, and even cause a panic on the stock exchange, which ultimately frustrate the course selected asset and allow speculators reap the profits. Therefore, in the U.S. regional exchanges, SEC and Fed have developed a number of rules designed to prevent such developments. Chief among them are the following.
• The number of open positions on specific actions to Short Sell orders may not exceed the total number of shares issued on the market. That is actually a trader can not sell air. Before you execute the warrant Short Sell, a broker must somewhere to take these actions.
• The process of borrowing shares is strictly regulated and monitored by the SEC. Broker shall in no case has no right to occupy their customers, with accounts such as Cash Accounts. Only the client margin account. If among all the accounts on margin with the broker is not found those assets for which his client was put warrant Short Sell, he can take them to another broker.
• The Short Sell transactions are guided in general the same rules as for operations Buy on margin. Only in our case, stricter requirements for the level of actual margin. This level is approximately 10-15% higher sales "uncoated" on margin, than the corresponding rate for purchases on margin. For example, the NYSE minimum requirement to maintain margins on sales of "uncovered" is 30% (versus 25% when purchasing). Accordingly, the agent for this exchange adds another 30% and its interest, bringing some requirements to the actual margin to 35%.
• Employed broker securities may be at any time demanded back the creditor (who may also want to sell them in a falling market). This will cause the broker to seek new lenders, thereby trying to shift debt from one source to another. If he did not succeed, the agent may at any time to make a deal to offset the trader's account, covering his open stance Short Sell without prior notice. Basically it means that your short position can be covered with a broker at any time, even if you are at this moment bear the loss on the transaction.
• Rule Uptick. Its essence is as follows: if a trader has applied for Short Sell, then on the Exchange that the warrant must be registered as an order to sell "without the covering. Broker to exchange legally prohibited its enforcement until the price increase. For example, if the last executed bid for the selected asset was $ 20, the broker can not sell these shares for Short Sell orders for as long as the rate does not rise and will not fix a new bid at $ 20.12 or higher. In this case we say that the broker sells in the face of increased sales price (Uptick).
As an exception to this rule with a broker there is an opportunity to sell and is priced at $ 20, that is, with zero growth rates (zero - plus tick), if only the last teak price change went in the direction of growth. For example, some previous sales realized $ 20, then was offered the best bid in the market at $ 19.72, or slightly less, and then the next tick prices again showed the bid equal to $ 20.
It should be noted that the Uptick rule exists only on the major exchanges in the world. In the OTC market Short Sell order can be filled at any time, including a falling market.
50,000 - to get to the indicator
Prior to the rapid growth in the number of Day Trader on NYSE, more than half of all sales of uncoated "carried out by market makers. They did this in order to regulate the market of those shares for prices that meet at the Exchange. For example, the broker receives an order from the option Short Sell IOC (Immediate or Cancel - «immediate or cancel), but this time he had no orders to buy (or eat, but exposed them to ask the price he is not satisfied). In this case, the market maker may offer a lower rate, even if it is the repository of this type of securities not. Stock market dealers, as well as Day Trader often spend a transaction for the sale "without covering. The fact is that their goal - to make a deal of $ 10 or even $ 0.05 per share, but they are gaining at the expense of a large number of committed transactions on purchase and sale of securities. NYSE, AMEX and NASDAQ each month an important indicator of the stock market - Short Interest (total sales "without the covering).
This indicator includes those securities in relation to which the warrant was executed Short Sell, but Offset deal had not been made (the position is not closed).
Information for readers to get to the indicator Short Interest, on the NASDAQ should be declared a monthly 50 thousand Short Sell orders for the selected asset (or a change from the previous month should be no less than 25,000). For NYSE and AMEX those numbers, respectively, twice.
Among the traders there is a perception that the growth of Short Interest evidence of the impending reversal of the market up. The logic is simple: as the number of open positions in Short Sell capacity grows and the volume of bids, as to commit the transaction must be offset in the future to buy these securities. Having mastered a single trade on margin when buying and selling "uncovered" shares, can proceed to evaluate the prospects for building a portfolio of securities, while buying and selling "uncovered" a number of different stocks.
As is known, in recent years, it brings a stable income portfolio management of assets (which includes items such as hedging, diversification, etc.), allowing for the inevitable losses of one sort of asset yet to gain statistically income on other financial instruments .
For example, the trader buys with a lot of margin AB shares at a price of $ 20 apiece and selling "uncovered" a lot of shares at AU $ 30 apiece. Suppose that for a source and a minimum level of margin - 60% and 30%, respectively. Suppose that after some time the stock market AB is $ 10, and AC - $ 40, that is, both open positions were unprofitable. In this case the broker will assess the state of the trader's account and, if necessary, to immediately make margin call. In general, the amount required to cover the purchase on margin, equal to the cost of the loan divided by the difference between 100% and the minimum required level of margin. In our case, purchase of shares of AB is equal to 100 x 20 x (100% - 60%) / (100% - 30%) = $ 1143. The amount required as security operations Short Sell stocks AU, is equal to their current market price, multiplied by the amount of 100% and the minimum required level of margin. Sold for AU, this value will be $ 40 x 100 x (100% + 30%) = $ 5200.
As a result, the total amount of buying and selling "uncovered" on margin in both cases is $ 1143 + $ 5200 = $ 6343. This amount exceeds the current rate of assets in the account the trader (in this example $ 5000), so he was still earlier to get a request to maintain the level of actual margin.
Example of a portfolio
For clarity, we consider the process of building a portfolio of assets of the stock market. Thus, in the production of computers some of the best financial performance are owned by Gateway (GTW). Figure 1 shows the weekly charts of share prices GTW and Medtronic Inc (MDT).
Weekly charts of share prices GTW and MDT.
Fig. 1. Weekly charts of share prices GTW and MDT.
Market shares of GTW, as seen from the figure, until mid-May 2000 relatively slowly downwards. It was formed by a full cycle of Elliott Waves. Then renewed bearish trend for the third wave to $ 30 or even $ 20 for 1 share, which was accompanied by a turn down the curve moving average mA (5). Moreover mA (5) has just crossed mA (21) top-down, submitting thereby signal to sell. Stochastic Oscillator is moving down, with its fast curve SSK is approaching oversold zone. MACD just starting to give the signal to sell, maintaining bearish market sentiment.
It became clear that the shares GTW an opportune moment to open a short position on the trend. So right now you can set the order Short Sell in the market GTW - suppose we have sold the lot at $ 55 1 / 2 per share.
Market shares of MDT - corporations belonging to the branch of medical equipment - we have included as an emergency option to open a long position. In statements to some analysts, this sector of medical equipment remains a potentially attractive for long-term investment.
As can be seen on the market formed a bullish trend. After completion of the third wave Elliott in May 2000 is the formation of 4-th wave. The purpose of this wave has already been achieved, so that the end of its construction - the case a few weeks. Then the bullish trend resumes to the 5 th wave to $ 65 apiece. Stochastic Oscillator is trying to signal to buy: formed near the minimum was higher than the previous one, besides a fast curve SSK began to cross the slower SSD curve upward. MACD continues to support the bearish market sentiment.
It becomes clear that MDT buy stocks too early, however, if we consider the process of diversifying our portfolio through the purchase and sale of various assets in one segment of the financial market, it is quite possible to buy lots of shares MDT at the rate of, say, $ 50 apiece. Thus, the sale of securities "without cover» (Short Sell) on the stock market does not assume a simple trade-air. Except for some moments (tightening margin requirements, control the overall volume of transactions, etc.), this operation serves as a link between stock market participants with different investment horizons. Thereby increasing the liquidity of traded financial instruments.
If this type of operation is you still mistrust and misunderstanding, in periods of falling stock market, you can switch to other segments of the financial market, for example, the currency market. It is known that the conduct of trading on the FOREX market there is no fundamental difference between buying and selling of currencies, that is the problem of Short Sell orders are automatically released.
Basil Yakimkin
Apparently, this is due to stringent rules of trade "without the covering, do not allow the trader to sell at the best, from his point of view, at times, as well as to the mentality of a certain part of market participants who do not want to trade the air and contribute to the further decline of the market.
"No cover"
Sale of Securities "Uncoated» (Short Sell) on the stock market often causes confusion among beginners. Indeed, if you only sell on a trend, based on the known principle of «trend is friend», how to behave in bear market trader? It is clear that in a falling market is an urgent need to sell all the assets. What next? Sit back and wait for the market will develop up to re-purchase the assets at the lowest prices?
In order to increase liquidity traded on the stock market assets, and attract more investors to its market participants and the relevant inspection agencies have agreed in principle possible in the stock market to sell financial instruments "no cover", ie without their physical presence at the trader.
Of course, that corporations were not happy with this decision because they believe in a falling market, a large army of speculators who trade with the trend, can significantly exacerbate the situation, and even cause a panic on the stock exchange, which ultimately frustrate the course selected asset and allow speculators reap the profits. Therefore, in the U.S. regional exchanges, SEC and Fed have developed a number of rules designed to prevent such developments. Chief among them are the following.
• The number of open positions on specific actions to Short Sell orders may not exceed the total number of shares issued on the market. That is actually a trader can not sell air. Before you execute the warrant Short Sell, a broker must somewhere to take these actions.
• The process of borrowing shares is strictly regulated and monitored by the SEC. Broker shall in no case has no right to occupy their customers, with accounts such as Cash Accounts. Only the client margin account. If among all the accounts on margin with the broker is not found those assets for which his client was put warrant Short Sell, he can take them to another broker.
• The Short Sell transactions are guided in general the same rules as for operations Buy on margin. Only in our case, stricter requirements for the level of actual margin. This level is approximately 10-15% higher sales "uncoated" on margin, than the corresponding rate for purchases on margin. For example, the NYSE minimum requirement to maintain margins on sales of "uncovered" is 30% (versus 25% when purchasing). Accordingly, the agent for this exchange adds another 30% and its interest, bringing some requirements to the actual margin to 35%.
• Employed broker securities may be at any time demanded back the creditor (who may also want to sell them in a falling market). This will cause the broker to seek new lenders, thereby trying to shift debt from one source to another. If he did not succeed, the agent may at any time to make a deal to offset the trader's account, covering his open stance Short Sell without prior notice. Basically it means that your short position can be covered with a broker at any time, even if you are at this moment bear the loss on the transaction.
• Rule Uptick. Its essence is as follows: if a trader has applied for Short Sell, then on the Exchange that the warrant must be registered as an order to sell "without the covering. Broker to exchange legally prohibited its enforcement until the price increase. For example, if the last executed bid for the selected asset was $ 20, the broker can not sell these shares for Short Sell orders for as long as the rate does not rise and will not fix a new bid at $ 20.12 or higher. In this case we say that the broker sells in the face of increased sales price (Uptick).
As an exception to this rule with a broker there is an opportunity to sell and is priced at $ 20, that is, with zero growth rates (zero - plus tick), if only the last teak price change went in the direction of growth. For example, some previous sales realized $ 20, then was offered the best bid in the market at $ 19.72, or slightly less, and then the next tick prices again showed the bid equal to $ 20.
It should be noted that the Uptick rule exists only on the major exchanges in the world. In the OTC market Short Sell order can be filled at any time, including a falling market.
50,000 - to get to the indicator
Prior to the rapid growth in the number of Day Trader on NYSE, more than half of all sales of uncoated "carried out by market makers. They did this in order to regulate the market of those shares for prices that meet at the Exchange. For example, the broker receives an order from the option Short Sell IOC (Immediate or Cancel - «immediate or cancel), but this time he had no orders to buy (or eat, but exposed them to ask the price he is not satisfied). In this case, the market maker may offer a lower rate, even if it is the repository of this type of securities not. Stock market dealers, as well as Day Trader often spend a transaction for the sale "without covering. The fact is that their goal - to make a deal of $ 10 or even $ 0.05 per share, but they are gaining at the expense of a large number of committed transactions on purchase and sale of securities. NYSE, AMEX and NASDAQ each month an important indicator of the stock market - Short Interest (total sales "without the covering).
This indicator includes those securities in relation to which the warrant was executed Short Sell, but Offset deal had not been made (the position is not closed).
Information for readers to get to the indicator Short Interest, on the NASDAQ should be declared a monthly 50 thousand Short Sell orders for the selected asset (or a change from the previous month should be no less than 25,000). For NYSE and AMEX those numbers, respectively, twice.
Among the traders there is a perception that the growth of Short Interest evidence of the impending reversal of the market up. The logic is simple: as the number of open positions in Short Sell capacity grows and the volume of bids, as to commit the transaction must be offset in the future to buy these securities. Having mastered a single trade on margin when buying and selling "uncovered" shares, can proceed to evaluate the prospects for building a portfolio of securities, while buying and selling "uncovered" a number of different stocks.
As is known, in recent years, it brings a stable income portfolio management of assets (which includes items such as hedging, diversification, etc.), allowing for the inevitable losses of one sort of asset yet to gain statistically income on other financial instruments .
For example, the trader buys with a lot of margin AB shares at a price of $ 20 apiece and selling "uncovered" a lot of shares at AU $ 30 apiece. Suppose that for a source and a minimum level of margin - 60% and 30%, respectively. Suppose that after some time the stock market AB is $ 10, and AC - $ 40, that is, both open positions were unprofitable. In this case the broker will assess the state of the trader's account and, if necessary, to immediately make margin call. In general, the amount required to cover the purchase on margin, equal to the cost of the loan divided by the difference between 100% and the minimum required level of margin. In our case, purchase of shares of AB is equal to 100 x 20 x (100% - 60%) / (100% - 30%) = $ 1143. The amount required as security operations Short Sell stocks AU, is equal to their current market price, multiplied by the amount of 100% and the minimum required level of margin. Sold for AU, this value will be $ 40 x 100 x (100% + 30%) = $ 5200.
As a result, the total amount of buying and selling "uncovered" on margin in both cases is $ 1143 + $ 5200 = $ 6343. This amount exceeds the current rate of assets in the account the trader (in this example $ 5000), so he was still earlier to get a request to maintain the level of actual margin.
Example of a portfolio
For clarity, we consider the process of building a portfolio of assets of the stock market. Thus, in the production of computers some of the best financial performance are owned by Gateway (GTW). Figure 1 shows the weekly charts of share prices GTW and Medtronic Inc (MDT).
Weekly charts of share prices GTW and MDT.
Fig. 1. Weekly charts of share prices GTW and MDT.
Market shares of GTW, as seen from the figure, until mid-May 2000 relatively slowly downwards. It was formed by a full cycle of Elliott Waves. Then renewed bearish trend for the third wave to $ 30 or even $ 20 for 1 share, which was accompanied by a turn down the curve moving average mA (5). Moreover mA (5) has just crossed mA (21) top-down, submitting thereby signal to sell. Stochastic Oscillator is moving down, with its fast curve SSK is approaching oversold zone. MACD just starting to give the signal to sell, maintaining bearish market sentiment.
It became clear that the shares GTW an opportune moment to open a short position on the trend. So right now you can set the order Short Sell in the market GTW - suppose we have sold the lot at $ 55 1 / 2 per share.
Market shares of MDT - corporations belonging to the branch of medical equipment - we have included as an emergency option to open a long position. In statements to some analysts, this sector of medical equipment remains a potentially attractive for long-term investment.
As can be seen on the market formed a bullish trend. After completion of the third wave Elliott in May 2000 is the formation of 4-th wave. The purpose of this wave has already been achieved, so that the end of its construction - the case a few weeks. Then the bullish trend resumes to the 5 th wave to $ 65 apiece. Stochastic Oscillator is trying to signal to buy: formed near the minimum was higher than the previous one, besides a fast curve SSK began to cross the slower SSD curve upward. MACD continues to support the bearish market sentiment.
It becomes clear that MDT buy stocks too early, however, if we consider the process of diversifying our portfolio through the purchase and sale of various assets in one segment of the financial market, it is quite possible to buy lots of shares MDT at the rate of, say, $ 50 apiece. Thus, the sale of securities "without cover» (Short Sell) on the stock market does not assume a simple trade-air. Except for some moments (tightening margin requirements, control the overall volume of transactions, etc.), this operation serves as a link between stock market participants with different investment horizons. Thereby increasing the liquidity of traded financial instruments.
If this type of operation is you still mistrust and misunderstanding, in periods of falling stock market, you can switch to other segments of the financial market, for example, the currency market. It is known that the conduct of trading on the FOREX market there is no fundamental difference between buying and selling of currencies, that is the problem of Short Sell orders are automatically released.
Basil Yakimkin
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