An Alternative to Selling Short



In the stock market, short sales are often met with criticism. There’s no doubt that they can be positive when it comes to creating profits, but there are a lot of people out there that have ethical and practical reasons for opposing them. Some of these opinions are founded in fact, actually, but only partially. For example, a lot of people blamed the Great Depression that began in October of 1929 on short sales. Yes, people profit with these when prices drop, and this provides an interesting dilemma when you take into account the fact that a huge number of shorts can actually drive down the price of a stock. But the fact remains that the Great Depression had been set up long before the actual crash. Companies, especially banks, had long been overextended, and short sales were put in place by those that recognized that a lot of very big mistakes had been made. The people smart enough to see this made a lot of money, up until the point where selling stocks short was outlawed for a while.

There have been a few times throughout U.S. history where shorts were suspended, the most recent being in 2008 in the wake of the housing crisis. The issue here is that so few people use short sales consistently that they rarely have any tangible impact upon markets. Many more people buy and sell in the traditional manner rather than borrow shares just to immediately sell them. In theory, short sales could have a profound effect, but there has never been a documented case where this has actually happened. A healthy stock wouldn’t need to worry about this at all because the drop that a large sale would have upon price would instantly be accommodated for.

Still, people have concerns. If you have some of these, there are still ways to trade on the downside of things without resorting to the traditional short sale. Put options can get you a good price of a large number of stock shares if you wish to use these, but traditional options are often complex to navigate and buying into an option agreement can be costly. Instead, a lot of people are now using binary options. These should relieve any feelings of guilt that you might have in regards to manipulating the price of an asset since binary options have zero influence over actual prices. They are an outside occurrence, a mere observation of price rather than a contributory effect. Think of it like you are making a bet on where price is going, except through an authoritative body. If prices go up and you have guessed that they will do so with a call option, you will be profitable. Put options are a “bet” that prices will go down. There are more exotic choices, too, such as the one touch, the boundary, and a few others, but the basic theme throughout all of these is that your binary option broker will payout if your prediction is correct.

Binary options are very cheap, too. It’s not uncommon to spend tens of thousands of dollars with a single short sale, and traditional options can cost even more. Binaries give you a way to trade the downside of assets cheaply. The vast majority of brokers will let you open an account for $500 or less, but you can have a worthwhile trade with a fraction of this. Instead of trying to overcome broker and contract fees and just squeeze a little bit out of every trade, every trade you are successful with in the binary world will give you a big return, sometimes more than 80 percent. What’s more is that you can trade short term. Something like a small 60 second trade let’s you invest more frequently without the expense of not having instant access to your complete account balance.