Let’s talk about short selling on one of the leading trading platforms, Robinhood. It is so popular among the traders that you think about trading, Robinhood tops your chart. It is popular for its unbeatable financial tools and touch of the whole market through the mobile app that gives you the whole access to it. A trader can buy stocks and Cryptocurrencies on the Robinhood platform. An investor can optimize his/her portfolio with the various buying and selling options available on the platform. Today, we are going to find out whether we can short sell on Robinhood or not.
The feature of short selling is not available as of now. However, it offers two different attractive features: buying put options and inverse ETF. Both of them are under marginal trading. The way Robinhood is designed is different. It is set up fundamentally for-profit based on long-term investment. The traders and investors can buy and hold stocks for the short and long term and generate profit with the actual growth of the security. Robinhood believes in the bullish market trend.
One should not mistakenly understand that put option and inverse ETFs are the same as short selling. They are methods of speculating on the declining price of a stock or a commodity. They are not similar to short selling however they have their advantages and disadvantages.
A put option is a security that is sensitive to time that allows a trader to sell stocks at a selected price, also known as strike price; however, it can be done in a fixed timeframe. This method allows a trader to make a huge profit even when a stock is falling. However, don’t consider the put option a synonym to short selling. Here, you don’t just choose a falling stock but you also choose a target price that your stock will touch. Here, the risk doubles. So, if you are a trader, want to buy a put option for a particular stock, you need to see the strike price and whether it is time-bound or not.
Let’s understand it with a stock.
The current stock price of Apple Inc is $161.84. If it starts falling and you assume that it will touch $150 in a week. In this situation, you can buy a put option of $150. If the stock price hits this target, your put option’s value will go higher.
The amazing magic of put options is hedging. It saves you against your portfolio’s degradation upon marketing downtrend situations.
Just imagine that you have a portfolio of 100 Apple Inc stocks at $165 price. You purchased it as long-term security. Now, if the market goes down then buy a put option of like $155 strike price and stock touches this price. Although you will in your portfolio, however, you can recover this loss by gaining with a put option. You gain more through your put option because the more people buy this put option the more premium price you will get.
Now, we are going to talk about how to buy put options.
Once you identify the stock that you want to purchase, hit the home screen of it. Click on the trade button which will bring a button of ‘trade options’. This will allow you to trade with all available options.
On the next screen, you will see the details related to the put that you want to buy. You need to select the date which is known as the maturity date. This is the time frame in which the stock price will hit the level that you bet for. In the end, you will see the options for buying the ‘put’.
After you select all the options, the App of Robinhood will calculate a break-even point. If you want to make money in the put option, the stock price must hit the break-even point at least once. The last step is to choose the size of your trade and finish. It’s like one lot which is equal to 100 shares. Once you choose this, finish it by confirming.
Although the put option is a great choice to cover the short position, it is risky for traders. However, those who like safe trading, choose Inverse ETF.
Like any regular ETF (exchange-traded fund) which covers an entire sector of the market, inverse ETFs also cover a broad market. So, putting it differently, inverse ETF is opposite to regular ETF.
Here is a question.
Why would anybody like to buy an inverse ETF when the nature of the market is going up?
Here is the answer.
A new government policy might discourage the use of conventional energy sources like crude and switch to solar and electric. All the companies which are dealing in conventional energy will go down. Inverse ETF is to cover up the loss incurred due to a policy change by the government.
Although we know that markets will always appreciate in the long-term, there is bad news all over the world. Inverse ETF will save you on losses.
A great advantage of inverse ETF is that you don’t have to have a good market prediction to be an ace trader. You can purchase it the way any other stock is purchased.
It is a cakewalk on the Robinhood platform. Simply go to the search option. Type the name of inverse ETF (if you know). If you don’t know its name, then simply type Inverse ETF and the best funds will be on your screen. You can choose the one you want to finish the process.
As of now, Robinhood doesn’t have any plan of launching short selling on its platform. Since it believes in long-term investment, we don’t think it will have this option in near future.
Hey Reader, Welcome to MyQuickIdea. I am Nikhil Saini, started MyquickIdea as a passion and now it’s now covering different topics like Blogging, SEO, Marketing, Technology, Finance, Stock Market, Fintech, etc. I always prefer pushing quality content for my readers. I hope you would be liking it.