Short selling serves a powerful function in capital markets. By borrowing a company’s shares (from someone who owns them) and selling them on the market, short-sellers are betting that a co’s share price will fall. Sometimes they are correct. Sometimes they are not.
According to Financial Conduct Authority regulations, firms need to report their short-selling activities (net short positions above certain threshold). FCA then aggregates these short-selling activities together and publishes them on its website (here). Interestingly, this data is updated daily and has an accompanying historical dataset.
One of the most shorted stocks in the LSE right now is the Metro Bank plc. It is easy to see why. Its balance sheet has crumbled and it is begging investors for more capital. Its share price has fallen from 3,250p a year ago to a dismal 536p. Short-sellers have made a fortune here.
Another stock that is currently under huge pressure is AA plc, the vehicle recovery specialist. Many investors have taken a dim view of the company’s prospects and are shorting the stock aggressively. Its share price has declined massively over the past four years, from 400p to 66p (see right).
But short selling is not without risks. The company may do better than expected. Its competitor may attempt a takeover due to its low valuation. A technical rally now and then. So stoplosses are essential.
So next time before you buy a share, perhaps it is a good idea to check if the stock is on the ‘Most Shorted’ list. If it is, ask yourself why – and whether you should go against the market.
Where to short stocks?
You can short stocks with CFD platforms and spread betting brokers like
Further info on short selling:
You may also enjoy reading:
- How to Go Short: Using spread betting to bet on the market going down
- How to find out what hedge funds are shorting and whether or not you should follow them
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Jackson has over 15 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.