The ETF Trend Following Playbook: Profiting from Trends in Bull or Bear Markets with Exchange Traded Funds

Chapter 13. Getting Leverage in the Markets

During the last several bear markets, you might have been well served by reducing your exposure to equities. A number of investors—perhaps even you—decided to “short” the market instead of exiting entirely. But why go short?

Short selling, as it pertains to stocks, is the selling of a security you do not own.

It works like this: Say you believe that Company A is about to take a big hit and its shares are going to lose value. You call your broker and tell him that you want to sell 100 shares of Company A (which you do not own) at $50 per share. The broker will borrow those shares from another client’s account and effectively lend you the shares to sell short, and your account will be credited ...