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Cautious Australian investors struggle to short the market: Are we fumbling the bag?

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Australians remain the least likely to short the market, even with the current volatility.

Australia's investors are the least likely to short the market, which could be costing them money in the current bear market, a new industry report reveals.

Figures released by Capital.com show that only 34% of Australian investors were likely to open a short position.

By comparison, the UK has around 41%, while in the world it has 38% of investors that are shorting the market.

And globally it was a profitable strategy.

In fact, the report says traders shorting was more profitable, with 32.1% of short trades being profitable against 28.7% for long positions.

What are investors shorting?

Short-selling enable traders to try to profit from falling asset prices.

Investors try to use this strategy to either protect their current portfolio or to profit from a falling market.

As such, it's not surprising that the Nasdaq 100 index was the most traded asset for the second quarter.

This follows the index having the worst start since World War 2.

At the same time, there was a mass influx into oil during the start of the Ukraine conflict, with an almost equally rapid exodus in the last 3 months.

However, this doesn't mean traders should blindly follow the latest trend.

"In hindsight, it is true that short-selling US tech stocks or the Nasdaq would have reaped incredible rewards for traders in the last 7 months," Laura Lin, Capital.com APAC CEO told Finder. "However, in real-time, the risk of rebounds in those markets can also be just as sharp," she told Finder.

The CEO also opines the need for shorting varies depending on the individual trader and that you shouldn't rush into shorting the market.

Investors learn the lessons of market cycles

Despite Aussies falling behind on trading strategies, the report shows we are learning to invest in a new market, bringing in more prudent risk tolerance measures to today's market.

The report shows that stop losses were falling during a rising market in 2020, but are steadily growing today.

"In more volatile markets, the challenges that traders face can be addressed by using risk management tools such as take-profit and stop-loss orders," Lin says.

She points out that it's important to gain education on the topic to mitigate potential losses and reduce the impact of volatility even in good times.

"In the same vein, when stocks are rallying, it is easy to get a little optimistic and remove take-profit orders, Lin added.

The CEO highlights that this strategy of profit-taking is likely to continue in the current market, but encourages those investing to always have a plan before trading.

Important information

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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.

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