Ask Colin

Do you know of brokers who do short selling with a stop-loss?


I do not advocate short selling unless you are very aware of what you are doing. The article on my free web site may assist you in understanding the basics of how short selling works. Go to hover your mouse over the Free Resources menu and click Educational Articles. It is called Short Selling Australian Stocks.

The way I teach trading, you need to set a stop-loss level before you enter a trade in order to work out the size of the maximum position you should put on. Whether you have an actual stop-loss order with a broker is a matter of style and discipline.

Any broker can execute short sales for you under the ASX rules. However, many will say they do not do it. I suspect this is because they will only consider it for large "professional" investors who can do enough business to cover the extra costs.

I also suspect that most brokers find that taking stop-loss orders and doing short sales just leads to disputes with private amateur investors, because they do not understand what they are doing.

Therefore, I suspect that you will be wasting your time with most brokers unless you have a minimum of $500,000 in your account and can demonstrate that you have the knowledge and experience to trade in that way.

Small investors are at a disadvantage, therefore, and their most practical alternatives are probably to effectively short the market with options or warrants. However, this is not a game for amateurs either. You need to understand the risks very clearly. These are difficult instruments to understand and they are highly leveraged.