TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Traders cautious about plan to introduce short-selling on IDX
Brokerages warn the scheme could make the IDX Composite index more volatile and potentially push valuations down if regulators do not carefully select which stocks may be short-sold.
Change text size
Gift Premium Articles
to Anyone
Share the best of The Jakarta Post with friends, family, or colleagues. As a subscriber, you can gift 3 to 5 articles each month that anyone can read—no subscription needed!
Attendees look at stock movements after the opening of the year's first trading session at the Indonesia Stock Exchange (IDX) in Jakarta on Jan. 2, 2024. (Antara/Asprilla Dwi Adha)
L
ocal brokerages are cautious about a plan to allow short-selling of equities on the Indonesia Stock Exchange (IDX) due to uncertainty about the process and the effects on the market.
They warn that the scheme, set to launch in October, could make the IDX Composite index more volatile and potentially push valuations down if regulators do not carefully select the stocks that may be short-sold.
However, they agree that a short-selling mechanism could open up hedging opportunities for institutional investors and let local retail investors conduct transactions that are common in other countries.
Short-selling, or shorting, is a trading strategy wherein investors gain from a stock’s decline, rather than the regular trade, or “long” position, where investors gain if a stock rises in price.
An investor who short-sells a stock borrows shares from a brokerage and then sells those borrowed shares to buyers in the market. If the stock price drops, the investor can buy the stock on the market at a lower price and return the shares to the brokerage, while pocketing the difference between the amount received when selling the shares and the amount paid to repurchase them, minus commissions and fees.
However, if the stock goes up, the investor must buy it back at a higher price to close the position, incurring a loss in the process.
Because of the risks involved, brokerages usually require investors to provide a certain amount of money as collateral, which is referred to as margin.
