How Dividends, Stock Splits...etc are accounted for in CFD Trading

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How to Prevent your Shares Holdings from being Shorted

Q.: During the short period does the LENDER actually own less shares?

A: Borrowing shares is like borrowing money; at some point you must return them. The risk to the lender is that the borrower goes broke before he returns the shares. The lender makes a charge for the service which depends on his view of the risks and may ask for return of the shares if he considers that the borrower's losses are reaching a critical point. The borrower may pay an additional charge to extend the period of the loan (a roll-over).

Most borrowers and lenders of shares are institutions, brokers, etc. Mere mortals can borrow indirectly by using Spread Bets or Contracts for Difference. If you go short, you are effectively borrowing shares to sell for money; if you go long, you are effectively borrowing money to buy shares. Depending on the balance between shorts and longs, the company offering these products may choose to cover the risk by borrowing real shares to sell or by investing money to buy real shares.

Q.: What can you do to prevent your shares holdings from being shorted?

A: Now what can the average personal investor do to stop their own shares being shorted, as believe me your own broker, if approached, WILL sell your own shares that they hold on your behalf as a nominee account.

There are two things you can do, the first is to certificate them but this is not obviously to everyone’s advantage but the alternative solution is simple. All you do is to phone your broker and put an order in saying that you wish to place your shares for sale at, for arguments sake, double today’s price. As they are 'on order' they cannot be lent out by your broker and in turn you are reducing the amount of 'free shares' out there that can be used for shorting purposes. And don't forget to move your limit order up when the price starts to recover, then, that way your shares can't be shorted - not much but helps :D.

Although an individual personal investor will not normally have enough shares to halt a concerted shorting attack, if a large number of holders did this it would reduce the overall amount of shares that they could get their hands on.

In my opinion well worth doing if not only for the knowledge that your own shares cannot and will not be used in a short attack against the very share that you own.

 ...Continues here - Is Short Selling Evil? It Shorting Legal?