Welcome to our fifth video in our Tiger Academy Series - US stock market investing for beginners
After watching the video from last week, I believe you are now able to understand the important differences between a cash account and a margin account. In this week's lesson, we will take you through two directions of stock buying in the US stock market.
Many people know how to go long, but what about going short? US stocks can be traded both long and short, which is one of the things that attracts many people to US stocks. Going long is buying and going short is selling without taking a position. When an investor does not hold a position in stock but expects it to fall, he or she borrows the stock from a broker and sells it, then buys it at a lower price when it falls and returns it to the broker to make the difference. So where does the borrowed stock come from? Is there any risk that comes along with short trading? In what circumstances we can’t go short?
Let's start with our fifth video about The two directions of US stock trading.
This week’s Tiger Academy video will take you through how to long and how to go short, which includes:
Q1: The concept of long and short
Going long refers to buying a stock with the expectation that its price will rise, reflecting a common approach to potential gains. [00:27].
Going Short (or Short Selling) is when an investor sells shares they do not own, expecting the price to fall [00:43].
Q2: How to go short on the Tiger Trade app?
Open the Tiger Trade app and find a stock you wish to short [02:40].
Click the Trade button at the bottom of the page [02:46].
Select Sell Short [02:52].
Enter the price and quantity of shares, then click Place sell order [02:52].
To close the short position, use the Close button, which will quickly buy back the shorted shares [03:23].
Q3: Does short selling require paying interest?
Yes, short selling is equivalent to borrowing stock from a brokerage firm, and you must pay interest (called the short rate) [04:55].
Q4: What is short data? How can we view short data on the Tiger Trade app?
Short data refers to the number of shares currently being shorted (short amount) and the time it would take to cover those positions (days to cover) . It helps investors assess the short selling pressure and bearish sentiment towards a stock [06:33].
To view short data on the Tiger Trade app: select a stock and click on Analysis [06:33].
Q5: What do you need to know about shorting risk?
Risk of a Short Squeeze: If the stock price rises instead of falls, existing short positions may be forced to liquidate (buy back shares) due to insufficient margin. This wave of forced buying pushes the price up further, which is known as a short squeeze [08:04].
Recall of Borrowed Shares: The lender of the shares (your broker) has the right to recall the borrowed stock at any time. If the broker cannot find replacement shares, a recall notice is issued to the short seller, which acts as a forced liquidation. This risk is greater for small-cap companies with fewer shares in circulation [09:13].
Q6: In what circumstances can we not short?
SEC Short Selling Restrictions: Short sales will be restricted when a stock price falls by 10% in a short period of time. This measure is taken to protect market stability and prevent further declines due to panic [10:12].
Unable to Borrow Shares: This occurs if a company has few liquid shares available or if so many institutions are short-selling that there are no shares left to borrow [10:32].
Newly Listed Shares: Shares are usually not available for shorting on their first day of trading in order to protect the stability of the market [10:45].
After watching this video, you should have a better understanding of the 2 directions of US stock trading. You can use the Tiger Trade Singapore app to simulate before you start shorting, and more features are available for you to discover.
See you next time!
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