Short it out

Mistakes are made by some people who sell short because they forget some of the fundamentals of the short game. It’s little wonder that only 3 per cent of financial betting and spread betting is done this way but once you know a few fundamentals you might wish to dip your toe in this lucrative world of spread trading.

Where some people go wrong is forgetting to follow the market trend- you need to analyse the price movements over several months not just a week or so. Look out for dim profit warnings which should result in a market slump and then, watch out for a rally on the market where prices should rise.

Check out the company’s business model, is it good or can you find a weakness there somewhere? Initially the company may look strong but as more competitors arrive on the market it may start to lose value. The company may have been overpriced in the first place which you can exploit to drive the stock down.

Spread betting on young unproven companies can prove lucrative, look out for free share issues, no profits and a High Market Cap as signs that the company may be weaker than its price suggests. Blinkx for example saw its share price fall from 28.50 to 16.25 in three weeks under the conditions mentioned above, short sellers would have made a killing on this action.