Basic Strategy for Spread Betting: Short Biased

Shorting is selling instruments with the hope that the price will go down. This can be done with actual instruments (where it can be quite complicated) and with derivatives which is what were interested in. With CFD’s and Spread Betting the underlying market moves below the Sell price spread offered by your broker you will be in profit. Conversely if the price stays the same or rises you will be making a loss. 

Traditionally Short selling was frowned up and seen as morally questionable, as it essentially involves making a profit while the value of other peoples assets fall. Over recent years the hostility towards short selling has decreased, to the point where it has become a staple of many hedge funds. Short selling is particularly attractive as it offers the possibility that money can be made from both rising and falling markets.

Being Short Biased means that an institution or individual trader has a dominant preference or exclusively deals with shorting financial instruments. While being short biased is not common, it is not unheard of. Taking a on a short biased approach can be done to several factors. Some who favor Short biased approach contend that the markets are more volatile downwards. They offer up examples where a market has seen slow steady upward trend only for the gains to be wiped out by one quick devastating movement. This is of particular importance to a derivatives trader who needs significant volatility in order to beat the spread and make a good return from their trades. While it is often true that markets are more volatile downwards this isn’t always the case with their being plenty examples which seriously question this belief. Others use a short bias to target instruments they believe are overpriced, which are ready for a fall.

Shorting should can and should play a important role in everyone’s derivative trading, but taking the decision to be short biased seems more dramatic. Though some traders who adopt a short biased approach have been extremely successful especially in bearish markets.

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