When shares are in trouble there is often a call for a short selling ban either on all shares or on a specific “strategic” class of shares such as banks.  A variation of this rule is the “up tick rule” where shares can not be sold short unless there has been a recent upward move in share prices.

Of course as a way of stabilising the market, this is nonsense.  All short selling does is to more quickly establish a lower price than would have otherwise happened.   The price would still have gone to its low point without the help of short selling.  Any overshoot would have been corrected by people buying the shares at a bargain price.

However financial spread betting and contracts for difference are a very good way of selling shares short even when there is a ban on this activity on the main market.

Selling a share short on the main market means to sell a share that you don’t have, and to buy it back later.  If the share increases in value then you will be out of pocket.  If the share falls in value then you will have increased the value of your stake.

Spread betting and contracts for difference are not covered by any ban on short selling, as they take the transaction off the open market, and instead make it into a transaction between two people.  This means that it is possible to bet against another person that the share price will fall.  There’s no need to sell the shares short, you just need to find someone who believes the shares will rise in value.

If the shares are in such a dire situation that they have had a short selling ban, then it may be quite hard to find this person.