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HKD’s Most Dangerous Trade Right Now

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Written by Timothy Sykes
Updated 8/2/2022 4 min read

It’s easy to think that a stock like AMTD Digital Inc. (NYSE: HKD), up +1500% in a matter of days, is a great short opportunity.

But most traders aren’t aware of a hidden cost lurking in this stock…

One that can cost you a fortune.

I’ve seen this happen before with Supernovas time and again.

It happened in GameStop Corp. (NYSE: GME), crushing shorts in the process.

And the worst part…many of them got the trade right!

It’s my job to ensure every one of you and my students knows the risks surrounding Supernovas.

They are incredibly profitable patterns. And if you want to keep things simple, stick to only buying shares.

But for those of you who want to dance with the devil, here’s what you need to know.

Shorting Ain’t Free

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When someone shorts a stock, they must borrow shares from their broker.

Many traders don’t realize they have to pay to do this.

For stocks that are highly liquid with large floats, the fees are negligible.

But when a stock becomes hard to borrow, this can get pretty expensive.

The first thing to understand is that the fees vary by broker, sometimes drastically. Not all brokers have shares available to short either.

I remember a specific situation in 2020 with Nikola Corp. (NASDAQ: NKLA).

Shares went parabolic, just like HKD.

At the time, the float was extremely small. The company planned on doing an offering a few months later.

But until then, finding shares to borrow was downright impossible.

Because of the supply issue, two things happened.

First, options markets went haywire. Because you couldn’t borrow shares to short the stock, the cost of bearish put option bets went through the roof.

Second, and more importantly, brokers began to charge as much as $1.00 per share per day to borrow the stock.

That meant even if you day traded the stock, you still paid $1.00 for every share your shorted.

HKD is even worse!

Right now, brokers are quoting rates of anywhere from $4.00 – $27.50 to borrow shares.

Think about that for a moment.

You could short HKD from $927.50 down to $900 and not make a dime.

Disaster Scenario

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So far, shorting sounds pretty bad, right?

Well, it can get a whole lot worse.

Let me take you back to early 2020 and a trader’s favorite stock, Luckin Coffee Inc. (OTC: LKNCY).

This Chinese coffee chain stock was popular amongst traders to go long and short.

On April 7th, shares were halted on word of falsified sales data.

When exchanges halt trading, you can get stuck in your position for anywhere from 30 to 45 days.

And guess what…

If you were short shares, the daily borrow rate accrued the entire time!

Imagine getting caught in HKD for 30 days at a cost of even $4.00 per share.

Every share you owned would cost you $120.

10 shares would put you out a cool $1200.

And can you imagine if you got stuck with a $27.50 rate?

This scenario is rare. But all it takes is getting caught in just one of these during your entire trading career to end it all.

The Bottom Line

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For me, the juice isn’t worth the squeeze.

I don’t short anymore, and I certainly don’t short stocks with high borrowing costs.

There’s plenty of money to be made on the long side.

I’d rather build up steady profits over time and consistently grow my account.

That’s not to say that money can’t be made on the short side.

Heck, I did it for years, and several of my millionaire students do this incredibly well.

However, they understand the risks and know what to look for when trading these volatile Supernovas.

Because, let’s face it, trading is hard enough without having to pay brokers extra money.

How much has this post helped you?

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”