Is stock short selling really restricted?
I received the following inquiry from a trader in Africa:
Hi, my name is Chuku, i am a Nigerian. i trade Nigerian Stocks and the Forex Markets. I understand that short selling in the NYSE has been banned. How true is it? and what could be it’s implications on the forex market.
thank you
As most traders probably know by now, there are restrictions on the shorting of financial stocks in the US. There’s about 800 stocks on that list designated by the SEC. These limitations are in place until October 2nd, though they could be extended for up to 30 days.
Actually, the US wasn’t the first to do this sort of thing. In the U.K. the FSA made an announcement on Thursday that it would be putting in short restrictions. And of course since that time several other countries have followed suit.
Now for my thoughts.
I’m not a fan of this action at all. Aside from it being a constraint on the free movement of markets, it’s something which probably hurts individual traders most. Institutions have the sophistication and capital to take advantage of other strategies to accomplish the same end (options, credit default swaps, futures, etc.)
At the same time, we are very likely to see considerable volatility around this whole situation. The lack of shorts means a reduction in buyers during downswings – something which could tend to support the market. It also no doubt messes up some of the algo trading going on out there. And who knows what’s going to happen when the restriction comes off. The pattern with these things is that the markets tend to go a little wild in those circumstance.
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