Government bans short selling from midnight ??

turbobob

Thanks for the further info. I find them a pretty hard going subject

I did wonder if they would be compliant with Esbo's proposed rule changes, seeing as no shares are lent/borrowed and it's settled in cash.

tradetime

turbobob wrote: »

If you use a CFD to short a stock am I right in thinking that no actual stock changes hands?

GordonGecko wrote: »

Correct -

That's not strictly speaking accurate.

GordonGecko

tradetime wrote: »

That's not strictly speaking accurate.

What's not accurate? The word Correct or the explanation?

tradetime

GordonGecko wrote: »

What's not accurate? The word Correct or the explanation?

The answer to his question is not accurate, the definition of a CFD was fine.

He posed the question, "If you use a CFD to short a stock am I right in thinking that no actual stock changes hands?"

The issuer of a CFD is in business to make money, whilst it is possible to "run a book" on open positions in order to balance the risk, there will invariably be a net position to hedge. Example; in the current market financials have been heavily out of favour, every man and his dog has wanted to be short the sector, the result will be on the book a net exposure to the short side which must be hedged.
So say, to keep it simple, you have 100 clients trading 1 cfd each, 20 may be long believing that financials are oversold, whilst 80 are similarly short. The book allows for 20 of the short positions to offset against the 20 longs, but there is a net exposure of 60 short to the provider, he will hedge this risk in the open market by shorting the stock to that value.
So to say that no stock changes hands is inaccurate, the purchaser of the cfd is not physically dealing in the underlying, but someone must.