Handicraft merchants are turning to short selling

Handicraft merchants are turning to short selling

Amid rising market risks and bearish sentiment, do-it-yourself traders are switching course and diversifying away from just long positions.

Two years after the markets went up, the tide seems to have turned, and retail traders and investors are starting to notice and change the way they trade and invest in the markets. It is widely known that retail traders and investors usually buy in anticipation of a rise in price – and then sell to close the position for a profit or a loss. They are rarely short sellers: A strategy that enables traders to try to profit from falling asset prices.

But according to another pulse report Published by trading and investing platform Capital.com, the retail penchant for long strategies may only be reflected. The data shows that 38% of retail traders were short in the second quarter of 2022. This was 34% higher than in the previous quarter and represents the highest number of short sellers trading on the platform since the first quarter of 2020.

The surge in short traders comes amid a backdrop of slumping markets.

According to David Jones, chief market strategist, Capital.com, the increasing number of traders with short positions in the second quarter indicates a changing investor mindset as markets turn more bearish.

“As a rule, self-directed traders and investors rarely short sell. They are so used to buying first and selling later that it is psychologically very difficult for them to get out of this way of thinking. Our findings show that there is a sharp rise in short selling to clients in The second quarter, which shows how significant the decline is in many markets. This may have forced many retailers to change their mindset.”

In addition to the growing number of short-selling deals, the Pulse report also found that short-selling was slightly profitable (32.1%) of long-term deals (28.7%) in the second quarter of 2022.

“The ability to short sell can have an impact on the overall profit and loss of traders. This may be especially true if we enter a period of prolonged weakness in the markets, where investors stop rewarding just blindly buying the dip,” Jones said. Risks such as stop losses combined with short selling can be a wise addition to a trader’s overall strategy.

According to the data, the two markets most exposed to the transaction on the platform in the second quarter were goods And the Indications. Shorting the Nasdaq (US100) has proven more profitable in the second quarter, posting a higher profit rate (33.7%) than long positions (32.6%).

“Buying dips has been a very profitable strategy for most of 2021 – but of course it was a different story this year with the Nasdaq 100 under pressure for most of the year so far. The index had a strong bounce at the end of March – but again, that rally hit the buffers. The index lost 22% in Q2. Those traders who were trying to buy the dip in Q1 – and burn their fingers – may have decided to throw in the towel and join the short sellers in Q2. The Nasdaq 100 showed initial signs of trying to form a base during June which from It should be an interesting third quarter as the battle between the bulls and the bears continues,” Jones said.

Across the commodity markets, oil has been the most exposed during this period. In the second quarter, 41% of all oil CFDs traded on the Capital.com platform globally were short, up from 35% in the first quarter.

“It is perhaps not too surprising that more traders are taking the view that the market may be overheating. Oil is up more than 500% from its April 2020 lows and the S&P GSC has more than doubled its value at its peak this year. In the wake of the Russian invasion of Ukraine, oil is up 70% for the year so far – and that was three months before the start of the year.”

Short selling can be a useful strategy as markets turn bearish

Short selling can be a useful tool when trading in volatile markets, not least because it enables investors to speculate on lower asset prices, rather than limiting themselves to those that are rising.

“The ability to short sell can have an impact on the overall profit and loss of traders. This may be especially true if we enter a period of prolonged weakness in the markets, where investors stop rewarding just blindly buying the dip,” Jones said. Risks such as stop losses combined with short selling can be a wise addition to a trader’s overall strategy.

“If you are trying to trade the markets without at least thinking about short selling opportunities, you are in a fight with one hand tied behind your back. As we enter into an environment potentially very different from the one that has prevailed in recent years, short selling can be a part important part of the investors’ overall trading and investing strategy.”

We’ve been spoiled by strong market rallying across all asset classes since March 2020 – but 2022 has been somewhat different so far.

Short trading will become an important aspect of trading psychology, and it should be an easy strategy to follow on CFD trading platforms.

To learn more about short selling and other retail trading strategies, visit https://capital.com/trading-explainers

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are from the authors. Not necessarily Capital.com or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is considered high risk and not suitable for everyone. You may lose all your deposited funds. Past performance is not a guarantee of future results.

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