Are you Sure "Shorting as a Sure Thing"? Where's Petey?It’s interesting to come across some of the rantings and claims. Not for any further enlightenment, but for the sheer pleasure of watching some folks struggle so much. While others roast marshmellows. Fab loves roasting. And we love Fab.
As many here know, I hold multiple citizenships and have equity and Forex trading accounts on 4 continents – including Europe. And possess even more bank accounts. But, in the end, I can only have one permanent residence. It’s a tax issue that cannot be avoided. One thing is for certain, I sure do know how foreign trading is executed in North America via a foreign residency.
Short selling is the sale of borrowed stock. Generally, traders sell short when they expect a stock’s price to decline. To start a short sale,
you must have a margin account with a brokerage firm, which allows you to borrow stocks from either the broker’s own inventory or from an outside custodian bank or broker-dealer, using your own eligible securities as collateral. Then, you sell the borrowed security, which leaves a negative share balance that is then maintained in your margin account as a "short position."
With short selling you have to realize that to short a stock, you need to borrow the shares. So this is only possible if the broker has the shares available to borrow. This is typically not a problem with large, liquid stocks but it's going to be much more difficult with smaller market cap stocks because of underlying liquidity issues. And that's difficult no matter who the broker. In addition, the broker will charge borrowing fees and sometimes a charge called "hard-to-borrow fee".
To close the short position, you must buy back the security. If the price drops, you can buy back the stock at the lower price and make a profit on the difference. However, if the price of the stock rises, you might have to buy back the security at a higher price for a loss.
The discount brokerages doing business in Europe and offer trading on the Canadian TSX or US exchanges are the most cost effective brokerages. Here is a link to the 5 best.
https://ampleinvest.com/best-brokers-europe/ But all these brokerage must comply with stock margin requirements for initial (at the time of trade), maintenance (when holding positions), and Overnight Reg T (Regulatory End of Day Requirement) time periods. They are described as follows:
The Securities Initial Margin is the percentage of the purchase price of the securities that the investor must deposit into their account. The European brokerages will ask for %100 of this amount, to be deposited in the Margin Trading account.
Next comes the Reg T End of Day Margin. Regulation T rules governing margin accounts is very important. The Initial Margin is the percentage of the purchase price of securities that an investor must pay. Reg T calls for initial margin of up to 50%. This is an additional 50% added to the account of the Stock Value being shorted.
Regulation T (or Reg T) was established in order to regulate the way brokers lend to investors. It requires short trades to have 150% of the value of the position at the time the short is created and be held in a margin account. This 150% is made up of the full value, or 100% of the short plus an additional margin requirement of 50% or half the value of the position.
Here's an example: If one were to short a stock and the position had a value of $50,000, you would be required to have a total of $75,000 in the account to meet the requirements of Regulation T —$50,000 from the short sale plus the additional $25,000.
And finally, there is Maintenance Margin which is the minimum amount of equity that must be maintained in the investor's margin account. Reg T calls for a maintenance margin of at least 25%.
A Margin Call occurs when the balance in a margin account falls below the maintenance requirement, the broker can issue a margin call requiring the investor to deposit more cash, or the broker can liquidate positions.
This is T
he $hithouse and not CEO.ca.
Last year our “torturing buddy” - God bless him - seeks advice on how a resource portfolio should be structured for percentage holdings vs risk / reward. And now we are to assume he has undertook junior stock short selling on the Canadian TSX via a European vantage point under the respective stock margin requirements. He may have even found a mentor (who I assume must be even more astute) to assist in making the position a success.
I am not suggesting any irregularities for a European retail investor shorting a junior resource stock on the Canadian TSX exchange. But I am struggling in finding any investment savvy behind the position, and the claim itself. And considering that it may have been the result of “investment advice”, one has to wonder.
https://www.youtube.com/watch?v=kx5eIULeKxE
At least with Oldfk, it is just a simple case of pure idiocy and individual failure. He is a $hithouse natural.
Tx