This is one of the main benefits and being able to bet on markets going down is a useful tool in post speculation and hedging with spread betting.
The principle of shorting stocks is not new, professional traders and hedge funds have been doing it for years. It works like this:
- Fund A thinks the price of Vodafone will go down and they want to bet on a drop in the short term (a few months).
- Fund A knows that Fund B has a long term (a few years) position in Vodafone shares.
- Fund A asks to borrow Fund B’s Vodafone shares so they can sell them to someone else.
- Fund B lends Fund A the Vodafone shares and charges 5% of the value as a fee.
- Funds A sells the Vodafone shares on the London Stock Exchange
- A month later Vodafone shares have dropped in price and Fund A buys them back.
- Fund A then gives the shares back to Fund B.
For the private spread betting investor, it is much simpler. They just bet a certain amount per point that the shares will go down. There is no need to worry about borrowing stock from anyone.
The spread betting broker will either net the position off against one of their clients that is long, or will borrow the stock just like Fund A did in the example above. Then give it back when the client closes their position.
Obviously, this example is based on a single trade and the intricacies of a brokers stock lending and borrowing team are much more complex than this.
Best Spread Betting Brokers For Going Short
You can compare all the best spread betting broker in our comparison tables – or take a quick lok at these top three spread betting brokers for going short:
- ETX Capital started life as an institutional FX broker but has focussed on the private client market over the past few years. They offer access to a good range of AIM shares and have a good European reach also.
- IG are one of the oldest and biggest of the spread betting world. Listed on the LSE with a current market cap over £1bn. They provide the widest variety of products as well as a useful insight platform giving customers access to market sentiment data.
- Spreadex is one of the oldest spread betting companies in the UK. Founded in 1999 they provide a customer service focussed offering on financial instruments and sports spread betting. If the mood takes you they also launched leveraged trading on bitcoin.
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Richard started the Good Broker Guide in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.