We touched briefly on shorting in the beginners’ guide, but we know this is the place that new users tend to struggle most. How can you sell something you don’t already own?! With this guide, we hope to clear up any confusion, so you can make as much – if not more – money on your sells as you do your buys!
- the maths behind trading so you know how to calculate your risk, profit and loss
- how to trade out in-play
- how you’re able to sell something before you haven’t yet bought (hint: that’s not really what’s happening)
To make it clear, shorting is selling something before you have bought it (buying is sometimes referred to as “going long”). By shorting, you are betting on a price to move lower, so if you think a player is going to play badly, you’ll want to sell them.
Everyone understands how buying works – you pay money for a share and you win or lose accordingly. Let’s break it right down though, so you understand the components and how everything is reversed when you short.
Understand buying first
If you buy one share in a player for 45p, you are taking on 45p of risk (also known as your exposure) – the worst that can happen is he gets sent off, his team concedes five goals and he finishes on a zero (or less) score. Because the markets settle between 0 and 100, the most you can lose is 45p. Because you have bought the player, you receive the score (in pence) at the end of the game. If it is less than the 45p you paid, you lose money, and if it is more than 45p, you make money. Check out the diagram below.
Now reverse it
When you short a player, everything in this equation flips around. If you sell the same player at 45p, you have 55p of exposure. You’re betting on the price dropping, and in a worst case scenario – say the player scores five goals and ends up on a score of 100 or more – the most you can lose is 55p. You stand to receive the 45p you sold the share for, but from that you subtract the value of the score at full-time. The visualisation below may help to understand.
The golden rule to cash out of a bet in-play is to do the exact opposite of what you did before. Fortunately, the Trade Out button does that for you! Simply tap the button and then hit Confirm to lock in your profits.
If you want to lock in some of your profits whilst leaving a bit on the table, buy back a portion of the shares you initially sold. The more shares you buy back, the more profit you lock in.
If you buy back more shares than you initially sold, you flip your net position from short to long; ie you go from betting the player won’t outperform his price to betting he will. This isn’t a move we tend to make but that doesn’t mean it can’t be profitable.
How does it work?
So now hopefully you understand the maths of shorting – what your risk and reward is on a trade, and what your eventual profit or loss will be. But why are you able to sell something you don’t already own?
The answer is that in SportStack, you’re not really buying or selling anything. To us, the terms ‘buy’ and ‘sell’ are a little misleading; they’re just terms that have carried across from other markets. On SportStack, you’re betting on a player’s performance to be better (buying) or worse (selling) than a given price (your buy/sell price). All this requires is that you put a pile of money on the table when you place the bet, and come full time, that pile of money will have grown or shrunk depending on how the player performs.
This pile of money is simply the amount you could lose on the trade. Going back to our earlier example, when you sell the player at 45p, you take on 55p of risk – this is the money you have to put on the table. This 55p will then grow if the player performs poorly and shrink if the player performs well.
What you see in your Sportfolio is simply a visual representation of all the money you have put on the table with your numerous bets!
Below we have posted videos from ourselves and from SportStack CEO Nick Smith on shorting – hopefully seeing some live examples in action will help to iron out any uncertainties.
Of course, if shorting still isn’t clear for you, feel free to DM us on Twitter and we can try and tie up any loose ends!
Short trades on the SportStack Matchday ExchangeTweet
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