One Big Stock Market Caution

It’s called “short selling” and 95 per cent of investors have no clue what this legal form of trading is and what it can do to them. You see -investment professionals have an inside track on the markets. Unlike yourself, they watch the “ticker” by the minute throughout the trading day. They are more interested in short term fluctuations and any newsworthy event that can spark blips on the chart.

Regulators have also provided traders with a mechanism to keep markets liquid. When bids are few, “market makers” can jump in to facilitate trading activity. Short selling can be viewed as a component of market making whereby investment brokerages “borrow” securities from somebody’s portfolio (even yours) and sell them into the market looking to buy back later at a lower price.  Sound dodgy? Well – completely legal. Apply this apparatus to the professional investor’s inside track and suddenly you the naive holder of stock position without a stock certificate in your possession becomes the conduit of an investment brokerage’s profit.

Every year around this time, folks invest more in the market irrespective of the quality of stock in the market in order to qualify for an RRSP deduction. Yes, some utilize GIC’s but most will invest in mutual funds which are completely exposed to the market’s peculiar system of operation. Hence; you need to monitor your financial advisor.