| Account Opening |
Under normal circumstances, investors can make profit from rising stock prices while falling stock prices entails loss. So, If the market is anticipated to decline, the one and only thing to do is to wait until the market bounces back. In this regard, investors cannot make profit even with a correct view on the market.
By borrowing stocks and selling short, it is possible to make profit from a falling market. The mechanism is simple: investors can borrow the stocks and sell them at high price and then buy them back from the market later on, cashing in the price difference.
Clients who are interested in short selling need to open a stock borrowing and short selling account before making any short-selling transaction.
To open an account, please fill in the Fulbright Securities' "Opening short sell account form", register your personal information in IRD and fill in the "Stock borrowing for use agreement" from IRD。
Please send the originals of these two forms (Please keep copies) to your broker and mail the documents Fulbright Securities Ltd head office:
Customer service department
Fulbright Securities Ltd
Suite 3212-14, 32/F, One IFC, 1 Harbor View St, Central, Hong Kong
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Borrow stock and short selling
| 1. |
Set up a stock borrowing and short selling account in Fulbright Securities Ltd |
| 2. |
Consult Fulbright if the desired stock is available for short selling |
| 3. |
If the stock is available, sell the stock to market with the ask price |
| 4. |
For instance, 10 lots of Hang Seng Bank are successfully sold (Selling price $100) |
| 5. |
Deposit margin of HK$25,000 (HK$100 x 1000 x 25% = HK$25,000) on T day (transaction day) into his stock account |
| 6. |
On T+2 day, Fulbright will transfer HK$125,000 from customer's stock account into borrower's loan account (HK$100,000 is the principal obtained after short selling) |
Maintenance margin - Example 1
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Maintenance margin: 110% of the borrowed value |
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If current price of Hang Seng is HK$90 |
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Margin ratio: = [ HK$125,000 / (HK$90 x 1,000) ] x 100% |
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No need to deposit more margin |
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If position is closed now, profit made is HK$10,000 (HK$100,000 - HK$90,000), deducting transaction and stock borrowing fees |
Maintaining margin X Example 2
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If stock price of Hang Seng Bank rises to HK$115 |
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Margin ratio: 108% x [HK$125,000 / (HK$115 x 1,000)] x 100% < 110% |
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Deposit more margin |
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Required margin value: HK$18,750 x [125% x (HK$115 x 1,000) - HK$125,000] |
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If position is closed now, loss incurred is HK$15,000 x (HK$115,000 - HK$100,000), adding transaction and stock borrowing fees |
Short covering
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When stock price of Hang Seng Bank drops to $92, clients could buy from market and return stock to the lender |
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Client buys the stock at the current bid and ask price through Fulbright or via the Internet, and inform Fulbright after the purchase, otherwise the stock borrowing transaction is not regarded as settled |
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On T+2 days after purchase of the stock, Fulbright deposits the margin of HK$125,000 to client's stock account and transfers the stocks out from the account. The transaction is then completed. |
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Borrowing fee will be deducted from the stock account on the same day |
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In the above example, client's profit is HK$8,000 x (HK$100,000 - HK$92,000), deducting transaction and stock borrowing fees |
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| About Short Selling |
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When stock borrowing is confirmed by Fulbright, no matter you sell the stock on or after that day, the borrowing transaction is regarded to be valid |
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During the loan period, if the borrowed stock issues dividends, Fulbright deducts the dividends from your stock account on the closing day of the book since the dividend belongs to the stock owner |
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There is no time limit for borrowing stock. But Fulbright reserves the rights to ask the borrower to return the stock borrowed after specified period |
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Provided that the stock borrowing agreement is properly filled, both cash and margin accounts can be used for stock borrowing and short selling |
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All stock borrowers are required to register personal information in IRD |
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| Fee |
| First time IRD registration fee |
$300(Once) |
| Half year administration fee |
$100 (provided that stock borrowing is executed in the half year period: Jan to end of June, July to end of Dec) |
| Stock borrowing financial charge |
The fee is calculated with reference to the value of stocks borrowed and the agreed interest rate, subject to minimum charge . Current interest rate is at least P + 3%. Minimum charge is HK$1,500. |
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