Interesting thing about short selling

[Aussiest]

I was talking to my broker yesterday and he informed me that you can earn interest (RBA amount - 2.5%) on any open short CFD position. He also said you can offset the interest from shorting 'shares' against your long share positions, thus potentially eliminating any interest. He basically said you're better off shorting shares to directly offset the interest on your margin loan.

 

[Trembling Hand]

You will not eliminate the interest because your % paid on the margin loan will be higher than the interest received from the short.

And in any case what is the point of that. You would then be hedged neutral of the position with an approx 2-5% loan and potential exposure to paying the franking amount of the div??

 

[Aussiest]

You will not eliminate the interest because your % paid on the margin loan will be higher than the interest received from the short.

And in any case what is the point of that. You would then be hedged neutral of the position with an approx 2-5% loan and potential exposure to paying the franking amount of the div??

No, actually, i tell a lie: if you are long shares 'XYZ' and short shares 'ABC' (they have to be different companies), you will receive the same amount of interest as the 'margin loan rate', but minus a 2.5% stock lending fee (SLF). So, you can offset your short share positions against your long share positions, minus the 2.5% SLF.

So, in a sense, your short share positions act to 'almost' offset your long positions, provided they are shares and not CFDs.

 

[Trembling Hand]

You have to be kidding!!

What are you trying to achieve here? having double margin exposure for the sake of what??

Oh, I know what your broker is trying to achieve, but are you that gullible?

 

[Aussiest]

You have to be kidding!!

What are you trying to achieve here? having double margin exposure for the sake of what??

Oh, I know what your broker is trying to achieve, but are you that gullible?

I am not trying to achieve anything . I am merely repeating what he said, sheesh .

If i see an opportunity to short a share, i am going to take it (as in, allocate a certain proportion of my trading capital to it, rather than borrow more $$$).

Thanks for pointing out the motivations of these guys though, it's always a sobering thought.

 

[nomore4s]

I think you are talking about the Macquarie Prime set up, this is the only broker I know of who runs this sort of set up.

TH refer here for a better explanation of how it works. It's actually not a bad set up for margin loans. Basically your long postions are offset by your short positions and the amount in your account, you are then charged/receive interest on any debit/credit you have on the account.

http://www.macquarie.com.au/mq/prime/home.htm

 

[Aussiest]

Yes i am. I thought it sounded like a good idea. I am not about to take out short positions just for the sake of taking them, but it makes me less nervous in doing so.

I thought it was interesting, i'd never heard of anything like that before.

 

[slackjaw]

CMC Markets has a setup like this, you get paid RBA - 2% on shorts and pay RBA + 2% on longs. You can completely offset your interest by having more shorts than longs.

IMO (my very amateur opinion so feel free to ridicule) having both shorts and longs on the markets would lower your vulnerability to daily swings of the overall market i.e. if the whole market goes down your shorts will keep you happy, if the whole market goes up your longs will keep you happy. From there iots just choosing the right longs and the rioght shorts .. isn't it?

 

[amy997]

you're forgetting that when your short CFD's you have to pay dividends, if your holding a short index contract this will offset any interest you recieve. this happened to me a couple of weeks ago.

 

[white_goodman]

i see no need to hedge if youve got tight stop losses... id rather take a small loss...hedging feels like a draw which inturn feels like kissing your sister, and cos im not from Tasmania thats considered a bad thing

 

[Aussiest]

you're forgetting that when your short CFD's you have to pay dividends, if your holding a short index contract this will offset any interest you recieve. this happened to me a couple of weeks ago.

Yes, i'm holding a short which will incur a dividend if i don't sell it (buy it back) before the ex div. date. But, i figure paying the dividend is better than suffering a loss right now, which i would if i closed.

So, bearing all that in mind, i am happy to hold until the share reaches my designated exit point.

Oh yeah, big lesson learned about short selling in reporting season :

Slackjaw, good theory about holding the appropriate shorts and longs, as long as they are appropriate, and not just for the sake of balancing out your portfolio.