Bearing game. How to make money when everyone is panicking

Is it possible to profit from a decline in the stock market? Is this earning method suitable for beginners? A short position is a trade in which a trader borrows shares from a brokerage firm, sells them, waits for the price to decline, and buys them back. The difference, minus the brokerage commission, is the investor’s earnings. Should you short falling stocks, is this trading method justified? How to make money when stocks fall, and is it worth doing? More on this later.

Everyone knows how to make money on stock growth - buy low, sell high, the difference is profit. These are long positions or longs, people working according to this scheme are bulls because they raise the value of assets. Our goal is to consider how to make money from falling stocks.

What does short trading mean on the stock exchange?

Shorting on the stock exchange is a type of stock transaction in which the investor expects to make money by reducing the price of shares borrowed from the broker. In fact, he is selling assets that he does not own. Subsequently, the investor returns them to the broker, but at a lower cost, keeping the difference for himself.

In simple words, the game for a fall is called “short”. The derivative word of this term is the English word short, which means “short”. In colloquial market slang there are such variations: short transaction, short position (sale or transaction), short sale and others.

In the bearish game, various trading instruments and their derivatives can be used (securities, futures, options, etc.), but the main principle of the bearish game on the stock exchange remains unchanged: earnings when quotes fall and losses when prices rise.

Let's look at the essence of a short position using an example.

According to the investor's assumption, the price of Alrosa securities (ALRS) will decrease. By borrowing 150 shares of Alrosa (ALRS) from your broker in the amount of 15,000 rubles. (at 100 rubles per 1 c.b.), he sells them at the current cost. At the time of sale, the trader incurs a debt to the broker in the amount of 150 ALRS shares.

After waiting until the quotes drop, the investor purchases securities for 70 rubles in order to return them to the broker, leaving the difference of 4,500 rubles as profit. (RUB 15,000-10,500).

By signing an agreement with a broker, the investor automatically receives the opening of a short position. If the application or terminal does not allow you to sell assets, then contact technical support.

Now that you understand how the process of making money by going down on the stock market works.

Bearing the stock market: Rules

Although this process is intuitive, it is still better for a novice investor to become familiar with the rules for opening short positions in the market:

• Before opening short trades, long-term positions must be closed , since it is impossible to conduct short and long trading on the same shares at the same time.
• Not all securities offered on the stock market can be shorted. Those that meet the requirements of the Federal Financial Markets Service are suitable for this operation. The Federal Service determines a list that includes the most liquid shares of the largest Russian companies: blue chips, the first echelon and some assets of the second. The broker has the right to lend to the client only shares included in the FFMS list. He is prohibited from providing other assets for such transactions.

Find a list of which shares you can sell on the broker's website. The Finam company has them in the “List of Margin Securities” section.

At first glance, this is a simple and understandable procedure. But playing short for ordinary traders carries significant risks. After all, none of them can know absolutely exactly where prices will move. It is recommended only for experienced investors who consciously take risks and are prepared for possible drawdowns, and not just for making a profit.

• In the Quick terminal, you can check for open short positions , which are displayed with a minus sign. If, for example, a broker lent a client 150 shares, the latter's balance would show -150 shares.
• An investor can use leverage to increase profits. But at first it is better to trade using only personal funds.
• Each asset that is allowed to be shorted has its own risk rate. It affects the amount of leverage. A list of stocks available for short trading and their corresponding risk rates can be found on the broker's website or is available upon request.

Commissions

• When a transaction is opened and closed within one trading day (intraday), brokers do not impose additional commissions on it.
• In the case of an overnight transfer, a fee is charged for the use of the borrowed assets. These percentages are calculated in accordance with the terms of the tariff of the selected broker. On average, it is about 14% per annum of the loan amount. The equivalent of a daily write-off is about 0.03835% (1/365 * 0.14) or 5.75 rubles. (RUB 15,000*0.3835%). If the trade is held for a couple of days, the commission will be 11.5%.
• It is worth considering that at the end of the trading day on the Moscow Exchange, quite often the market rises . This is due to the fact that traders who waited until the last moment are covering their shorts.
• Transferring a position is almost always associated with great risks , since unexpected news may appear overnight, under the influence of which there will be a morning gap between transactions (gap).

It is also worth considering possible risks before entering a trade.

Bearing the stock market: risks

1. If an investor has purchased a stock and its price declines, he can wait out the drawdown period. When you open a short position, you must either trade or close your positions. An open transaction for 5-7 days is unprofitable, since a commission will be calculated daily.

Short selling is designed for a daily (maximum weekly) time period to avoid loss of profit due to overhead costs.

2. The absence of limitations on potential losses is an equally significant factor in a short position. If a speculator bought shares with his own funds without using leverage, his losses may amount to the size of the transaction, that is, the cost of the purchased shares.

The peculiarity of such transactions is the fact that you can only win an amount not exceeding the value of the share. For example, if you short a security whose value is, for example, $150, then the maximum amount the trader will receive upon winning will be $149.99. While the income from the acquisition and long-term holding of individual securities has no limit. Assets may rise or fall. But their growth when investing for a long period will allow you to earn from 100% to 200%, possibly higher.

But in a bearish game, if stocks rise, potential losses can easily exceed 100%, and amount to 200-300% or more. It’s good if the shortist has set a stop loss.

Stop Loss is a value at which assets are automatically sold, which limits the loss of funds.

For clarity, consider Tesla shares, which have grown by more than 600% in 5 months since the stock market crash in March 2021 (from $255 to $2,297).

Risks increase if leverage is used to purchase shares. Such shorting incurs big losses.

3. Averaging of unprofitable positions by many newbies leads to the loss of the entire deposit. Professional speculators rarely average.

But this type of stock trading also has advantages.

Eurobonds (Eurobonds)

This is the name given to debt securities issued in foreign currency. Their issuers are the state and major market participants such as Gazprom and Lukoil. The owner of the Eurobond receives dividends in a fixed amount, and the rate remains unchanged throughout the entire validity period of the security.

Thus, we can distinguish three factors that determine the profitability of Eurobonds:

• coupon payments,
• growth of currency quotes,
• an increase in the value of the bond itself.

Among the advantages of such securities are a higher level of profitability compared to foreign currency deposits, good liquidity indicators and the possibility of long-term investment (over 10 years). In addition, Eurobonds issued by the Ministry of Finance of the Russian Federation are not subject to personal income tax. The main disadvantage of these assets is their high cost: for example, the price of one Eurobond starts from a thousand US dollars.

According to A. Yankovskaya , tempting prospects open up if you pay attention to the national issues of states that have faced devaluation amid expectations of a resurgence of the pandemic. Thanks to the falling exchange rate, there is a chance to get an increase in profit in ruble equivalent. However, the expert does not advise using a regular account to play on an increase in the price of the bond itself, since the tax amount will also be calculated taking into account the increased quote.

Pros of short positions

Short trading has the following advantages:

1. Getting quick profits;
2. The opportunity to earn money not only when the stock price rises, but also when it falls,
3. Possibility of hedging long positions during drawdowns.

If the first 2 are obvious, then the 3rd advantage is not used or overlooked by many. Therefore, let's look at this process in more detail.

Hedging is a tool of trading strategies that allows you to insure risks that arise in the market. Simply put, it is an agreement for the future sale or purchase of any securities at a certain price. The purpose of its conclusion is to minimize risks from price dynamics. Thus, the investor knows the future value, which allows him to insure himself against unexpected fluctuations.

As an example, it is worth considering the purchase by investor A of Gazprom assets . These securities are attractive for long-term investment, but are expected to fall in value when playing for a short or medium period. To avoid wasting time during the drawdown, the investor opens a short contract on a futures contract for Gazprom assets, which will allow him to hedge risks and earn extra money.

Will the ruble exchange rate continue to fall? How long will this last?

“Yes” to both questions. It will be and yes - it will be for a long time. The issue here is not even about sanctions, not about oil and viruses, but about the economy itself. Even before all this mess, the state of the Russian economy left much to be desired.

The weaker the economy, the weaker the national currency - this is elementary. And you don’t need to be an associate professor at an economics university to understand this simple truth.

This is why you should remember for the future:

A dollar will inevitably cost more than 100 rubles

This event will happen. The ruble is almost there. He has been going there throughout his entire history, starting with Yeltsin. And he will get there. Maybe in a year, or maybe in 5, but he will be there. That is why…. do not wait. And as soon as the ruble temporarily strengthens, start buying dollars for your stash .

Cash, beautiful dollars. Because this is the only way you can save money in this country. Only and exclusively so. Buy dollars, friends and girlfriends. Buy $.

Disadvantages of Shorting Stocks

Playing short has a significant drawback - the risks of short positions are much higher when comparing them with long-term ones.

Let's compare. Purchasing securities on the stock exchange is accompanied by 2 main risks:

• Bankruptcy of the company and complete loss of 100% of money. But if the assets are provided by reliable issuers, this is unlikely.
• The stock price goes lower than it was when purchased. In this case, the investor waits out the drawdown or closes the transaction, incurring losses. He makes all decisions himself. The broker cannot close the client's long position if the latter has no debt obligations. The depositary is responsible for accounting for securities - an independent organization that controls transaction procedures and the transfer of ownership of assets from one owner to another. Regardless of the situation, the investor remains their owner.

Things are completely different when there is a bearish game on the stock exchange, when the trader uses borrowed assets. If the price goes up and there are not enough funds in the client’s account, the broker can issue a warning to him and resort to forced closure of all positions. In such a situation, waiting out the drawdown is not economically profitable.

In this regard , before opening a short position, even check the deposit for the presence of free funds in an amount that allows you to survive the drawdown.

Margin call

In addition, the broker may make a demand to the trader to close a transaction or to replenish the account in order to cover losses (margin call). This can happen if the amount of funds in the latter’s account approaches a critical level . It will not be enough to purchase and return borrowed assets. The investor must prove to the broker that he has the amount that will cover temporary losses by replenishing the account with cash. Regardless of the outcome, the broker does not face risks, since he can forcefully close the trader’s positions at any time. It is better that the situation does not reach the point of a “margin call”, since the loss will constitute a significant part of the deposit.

In this regard, it is important to choose reliable and trusted brokers. I invest in shares of Russian companies through the broker BKS, foreign ones through Roboforex.

Why the ruble is constantly falling: the main reasons

Over the years, the reasons for the fall of the ruble have not changed a bit:

• collapse in oil prices;
• sanctions at various levels are not going to stop;
• the Russian economy is weakening;
• inflation goes beyond the planned limits;
• global dollar strengthening;
• dollar deficit in the Russian Federation.

As you can see, there are plenty of factors. Even one of them - such as a fall in the price of oil - would be enough to predict a negative future for the Russian payment unit.

But, as you can see, there are so many reasons that the word fall will always reflect the state of the ruble. And we will see the phrase “corrected” more than once.

Short and Dividends

Dividends are a company's payment of part of its profits to its shareholders. This is a good way for investors to receive additional income on the stock market not from the revaluation of purchased securities, but from participating in the profits generated by the company.

For the payment of dividends, the day on which the register of shareholders is compiled (cut-off) is determined. Usually after it the price of assets goes down by the amount of dividend paid to shareholders. This situation is called a dividend gap. Inexperienced traders assume that this is a great way to make money, since the date of compilation of the register is known in advance. They think that by opening shorts during the dividend cutoff, they can make a good profit (sell assets before it, and after the gap, when they fall in price, buy them back and return them to the broker).

Such trading is accompanied by great risks. The fact is that an investor from whom the broker borrowed dividend securities will not be able to receive dividends, since his assets have been sold. To eliminate this injustice, the broker withholds funds from the shortist's account, the amount of which is equal to the amount of dividends for the original holder of the shares. This situation shows that you should not open a short sale of shares before accruing dividends. Although it is possible to make money from their fall (if the exchange rate falls by more than the amount of dividends), in reality, the short seller closes the position with a loss in 90% of cases.

Starting a business

Business always brings at least some profit, even during a crisis. You can rent premises and hire employees for a small fee. During a crisis, many people do not have a job and it is difficult to find one, especially for those who do not have a higher education. The most profitable way is to search for jobs for potential clients. Any entrepreneur must find ways to make money, even if the customer does not have money to pay for services.

11 reasons why banks refuse loans and how to fix them

How to make money from falling stocks 2021

To make money from falling stocks, the only and main requirement is adequate market analysis. To open a sell position, there must be a sell signal obtained based on technical analysis on a short time frame (up to H4), preferably confirmed by a 4-hour or daily chart. For those who follow fundamental stock analysis, it is important to timely assess upcoming news.

If the stock does not behave as predicted, the short seller will lose money, so setting a Stop Loss is mandatory.

I don't often bet on stocks going down, and the main pattern for opening a trade is the Hammer candle. Let's go back to the Tesla stock chart.

In the 1st case, earnings exceeded 4500 points after sitting out the weekend, in the 2nd option the profit during the week amounted to 8300 points, the 3rd option brought 4500 points. arrived in 1 day.

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• You can make money when stocks fall.

In conclusion, I would like to note that short trading on the stock exchange is a very real way to make money , and many people I know make good money from this. However, before each trade, it is important to evaluate the potential risk-to-reward ratio and place limiting orders.

I recommend reading:

• Investments in shares,
• Where to invest money at high interest rates,
• Locking positions on Forex

How to avoid becoming a victim of scammers and protect yourself and your funds

What a person who is going to make money on currency may face:

• Fake currency;
• Fraudulent resource;
• Identity theft of bank and debit cards.

Recommendations:

1. Before you start working with any resource, learn as much as you can about it. Read reviews, contact people who are already working with a particular site. Don't invest in something you know next to nothing about.
2. Take seriously the study of the conditions presented in the documents. Read absolutely everything. Check the accuracy of the information you receive.
3. Do not share or transfer your personal data to the first resource or person you come across. Keep passwords, codes, logins, email and other important information secret.