Thursday, October 16, 2008

BEWARE..Short Sellers..whoever you are...pls stand up...where is the real SLIM shady

SGDividends would like to inform short sellers that if you are too successful in shorting the stock and the stock price does go down way down...you may not be able to buy it back!...yes its weird..and it happens at some brokerage houses. (maybe not all....but definitely some)

Apparently, when you short a stock and the value of the stock plummets like mad ...the brokerage house risk minimization system will prevent you from buying anymore. This is because when you short a stock the system deems you as "owning" the shorted stock and since the stock has devalued in price....you are deemed to have made a lose. And if this lose is more than a certain percentage of your credit buying power...you cannot buy anymore. And if you can't buy...AND IF you are a naked short seller.....sayonara to you..minimum charge of SGD$1000 imposed by SGX.

You can circumvent this by asking your house to increase your buying power ( way before you start naked shorting by the way)......or adding cash as this decreases your "loss"....or paying up for your previous unsettled contra losses or unsettled shares as these will add on to your "loss". Contra profit will minimise this lost.

Basically, if the system see that your loss is more than a certain percentage of your credit buying power.....you are not able to buy anymore. This applies to those who buy a stock first ( not short) also. If the stock you own goes down, and your total loss exceeds a certain % of your buy limit, you can't buy anymore.

Its only in recession times that we become aware of such mechanism as stocks value falls.(maybe its a new invention...dont know) So well well short sellers...beware...have fun but dont depress the stock too much lah...got auntie uncle life saving inside leh...give chance k.....

Oh yes....the above is the rough story...better to call your brokerage house to clarify and take note that the above is refering to online trading platforms where you place orders online..... offline orders like remisiers or trading representatives..ask yours

2 comments:

  1. Hi SGDividend,
    Thanks for the article.

    What about buying at the same day, and have a max buying limit?

    Thanks,

    ReplyDelete
  2. You mean shorting first then buying back at the same day?

    Think it would take the difference...for example...sell at 1.3 buy at 1...then contra profit of 0.3...so as this is a profit..it should not prevent you from buying and it will not cause you to exceed the percentage..

    Hey suggest you ask your brokerage house...this is set by the credit department of the brokerage house...and they dont tell you this in FAQs..

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