Stockopedia for long and short

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2nd Jan '23 by Weedubbya

2 comments 488 reads

On another thread a poster has mentioned that they are generally 70% long high rank US stocks and 30% short low rank stocks.

I am interested in this as a form of flattening out large drawdowns, almost like an insurance against large market slumps. I have looked at it in regards to UK stocks but lots of low rank stocks cannot be traded on UK spread betting sites. I assume the US subscription greatly increases the pool of possible low rank stocks to short.

I am aware of the danger of shorting having unlimited losses and the risks involved with trading on margin but do any who go short and long have any advice?

Thanks

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Weedubbya

Premium Member

2 comments

CaptBill

2nd Jan '23

I can offer two pieces of practical advise which apply to UK shares. I can't comment on how applicable they are to US shares as I have no experience of shorting these, but assume that things would be pretty similar:

1) Many spreadbetting sites offer gauranteed stop losses on larger more liquid stocks. They charge a little extra for this, the actual mechanics vary from one site to another. Unfortunately you are unlikely to find this facility offered on smaller illiquid stocks, i.e. AIM. I would recommend using stop losses when shorting, and gauranteed stop losses where possible. However it is easy to be stopped out simply due to intraday price volatility, so advisable not to have too tight a stoploss, possibly reducing the size of the individual holding to compensate for the increased risk.

2) Regarding margin. Simply don't let the nominal value of the trades exceed the amount of cash you have available. Most spreadbetting sites don't make it that easy to track the total cost of the underlying shares. CMCX is one site that very kindly does. For other sites you can simply use the amount of margin used to give a rough estimate. For example, the margin on shares is normally 20%. This means when your overall margin reaches 20% this is the equivalent of having 100% of your account value invested in shares. Some shares however may have margin requirements greater than this, - 25% is not unusual - and some spreadbetting sites even restrict some shares to 100% margin, i.e. you are required to pay 100% of the share price. Every spreadbetting company seems to have slightly different ways of calculating these things, and of expressing them, which can be confusing initially.

I have certainly noted that over the last year or more the coverage of smaller less liquid shares has been reduced by many spreadbetting sites, including the better known sites such as IGG and CMCX. You might find Spreadex still offers spreadbetting on many such shares.

Hope that helps. Cheers

CaptBill

Edward Croft

2nd Jan '23

I’ve run leveraged long short portfolios along the lines of the NAPS for years. It can be very effective when high rank beats low rank though can sometimes invert. Luckily I wasn’t using this strategy in the covid aftermath as it was heavily loss making - low rank stocks dominated returns.

The main issue is that most low rank small cap stocks can’t be short sold on spread bet sites. I’ve always struggled to do so. You can download a spreadsheet of shortable stocks from IG - which does help.

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Weedubbya

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