Are short spread bets wicked?

European regulators have vilified the short seller as the root cause of the recent volatility in the markets. Here, Tim Bennett gives three reasons why a ban on short selling is complete nonsense - and why you should be prepared to trade both ways.

Desperate to be seen to be doing something, regulators in Europe have tried to ban short selling of certain stocks. In a nutshell, they don't like hedge funds making money from falling prices and even accuse them of exacerbating downward moves. The implication is almost that there is something wicked about making money when prices fall. But anyone thinking of becoming a spread better and therefore able to make money from falling, not just rising, prices shouldn't let this type of argument put them off. Here are three reasons why.

For starters, criticising people who make money in a falling market while turning a blind eye to those who make a killing in a rising market is inconsistent. If regulators were so worried about share price falls, they would not allow bubbles to form in the first place. Low interest rates and quantitative easing have happily pushed up asset prices in the share and commodity worlds to frothy levels in the recent past. So it is simply bizarre for a regulator to get upset when prices start falling back to earth. Indeed, picking on anyone who wants to make money when prices fall smacks of scouting around for a scapegoat on which to pin central bank and government policy failings.

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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.