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Short Selling

Short Selling

Introduction

Stock Borrowing & Lending allows investors to capture opportunities even if the market is going through a downward trend. Investor foresees the stock price will decline and borrow stock at target price with a loan interest and sell in the market. If the price dropped as predicted, investor can buy back that stock at a lower price and make profit with the price difference by deducting the trading and interest costs.

Advantages

Comparing with warrants, the bid-ask spreads is lower in Stock Borrowing & Lending. When the stock is declining, investors can make profit without relying on the liquidity provided by distributors, also will not be affected by the factors of volatility and outstanding volume.

Stock Borrowing & Lending Process

Borrow Stock:

  • Open a short sell account with CHIEF;
  • Enquire CHIEF if the desired stock is available for short selling;
Short Selling:
  • Once stock borrowing is confirmed by CHIEF, you can contact designated staff to make short sell instruction;
  • Initial margin is required to deposit before 5:00pm on T day;
    (For example, 1000 shares of Tencent (#00700) are successfully sold (Selling price $100), initial deposit: 125%, where 25% of the transaction amount is $25,000 and 100% is principal of short sell)
  • The calculation of SBL Loan interest start at settlement day (T+2)
Example 1:

Maintenance Margin is 115% of market value

If Tencent (#00700) price rises to $110

Margin ratio = 114% [125,000 / (110*1000), lower than 115%]

Since the margin ratio is lower than 115%, Margin deposit is needed.

Deposit amount= $11,250 [1.25 * (109 * 1000) - 125,000]

Example 2:

If Tencent (#00700) price falls to $90

Margin Ratio = 139% [125,000 / (90 * 1000), larger than 115%]

No margin deposit is needed.

Stock Return:
  • You can buy back through Internet or our staff. After that, you must inform CHIEF, otherwise the return process will not be completed;
  • The loan fee will be deducted from the short sell account at settlement day (T+2).

Importance

  • Short sell order can only be made when stock borrowing is confirmed by CHIEF;
  • The short sell order must be conducted in continuous trading session, and the selling price must not be lower than the ask price;
  • If the price keeps rising, the client will bear unlimited floating loss;
  • If the dividend payment occurred, the company will deduct the dividend from your account at the Ex-Dividend date.

Charges

SBL Registration Fee $300 (Include $270 First Registration Fee and $30 administration fee)
Administration Fee $100 (Given that stock borrowing or lending is executed from January to June / July to December)
Loan Fee Differ from stock and subject to minimum charge

If you have any queries, please contact our customer support hotline (852) 2500 9199.


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