The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit from Price Declines, Expanded Second Edition

CHAPTER 8

SHORTING NON-EQUITY INSTRUMENTS

While there are some restrictions on shorting stocks, we are free to short futures, options, and forex. Those markets simply could not exist without shorting.

As a stock trader, you must learn to buy and sell, but shorting is optional. Even in bear markets, where buying opportunities are few and far between, a savvy bull can find an industry group that rises while others sink. Still, a stock trader who knows how to sell short has a definite advantage over a perma-bull, especially during bear markets. This is why I encourage you to learn to sell short.

While only a small minority of stock traders ever sell short, a vast amount of shorting takes place in forex, futures, and options. As a matter of fact, the volume of shorting in futures or forex is exactly equal to that of buying! For every contract bought there is a contract sold short.

Shorting is an integral part of the derivatives markets. Instead of teaching you the A-to-Z of futures, options, and forex, I will begin each section by referring you to what I think are the best books on that market. They will help you learn the basics of futures, options, or forex before delving into how to sell them short. Then, as we get into a discussion of each market, we will jump right into shorting.