OP did use the term "futures" in his original question. Think everyone is over-thinking this a bit. Assuming equal position size, if the individual had both long and short positions simultaneously in either two accounts, two brokerages, whatever, he is basically flat. If the position sizes were not equal, he would either be net-long or net-short. No need to complicate it.
I did not even address you so not sure why you say I lump your comments in with others. We are talking about a situation from a risk-taking taking perspective. I mentioned that yes, there are tax reasons (delaying a taxable event) why someone in the past might have done that. But you are inaccurate in saying that "trading against the box" will get you in any way more easily into a shortable position. That is not accurate. If you use your own shares that you are long to put on a position that offsets your long position then you are net flat and you used your own shares in the "short". If you hold a long and establish a short with your broker in the same shares then you borrow the shares from someone else. Your net economic effect is 100% the same. No difference. So, again, you are right that holding a long enables you to have inventory to short but it makes economically zero sense in doing so because as soon as you square your long position you still need to locate the inventory for your short elsewhere (and I do speak from a professional trading desk perspective now). So, why doing this if you can instead just wait and be flat anyway and once you locate shortable inventory you short. You need to locate it anyway before you ever square your long. So, again, other than tax avoidance/delay reasons there is zero logical reason why you would want to be long and short at the same time. Now, an entirely different story (and maybe you tried to allude to this) would be to run an index arb book for the sole purpose to have long inventory in single stocks that you can short intraday. A lot of sell-side trading desks do that. They are short index futures and long the constituent single names and "short sell" those names in and out all day without having to locate borrows. But that is an entirely different story because they in effect sell their long single name position in the market and buy it back later. It does not affect the index arb book but enables them to gain short exposure in names that might be hard to short otherwise.
Exactly, and that is why I said you are net flat if you are long 5 shares and simultaneously short 5 shares in the same name in either one or two accounts. Period. Simple as that. Same as not having any position at all.
I try to understand the logic of this construction. The bottom line is that at a certain moment you should decide to close one side and continue the other one. But my question is then: based on what you decide to close one? You should have information at that moment that you did not have earlier, if not you gamble. But that information cannot depend from the fact that you have 2 positions (1long and 1 short), it should come from something else. By opening 2 opposite trades you do not become suddenly more smart. So you could do nothing and wait till you have the information you need and only take the correct trade. Why are you sure that at the moment you close one position the other one cannot reverse so that you lose 2 times? That information you will have also without having any open positions because like i said: by opening 2 opposite trades you do not become suddenly more smart. Maybe I am not smart enough to understand this strategy.
The following are replies I made to 1245's comments: [....one use is simply to enter both sides at an important price level and then exit one position based on the following price movement. It's mainly used to avoid missing a strong move away from or through such price levels after which there is no reaction on which to enter. This came up last night in a discussion about trading tactics when a non-native English speaker asked me what you call it in English. I only trade on reactions, but as I remember he places a stop loss order for each position which often eliminates missing an entry due to the time that would be needed to place a new order in the direction of the breakout. I can see often getting whipsawed doing this, but he claims it's very favorable on balance.] As I said above, I enter trades on reactions only. And when I said that during the discussion we were having the point was raised about TSE's new computer system with which big breakouts often happen in the blink of an eye, and without a following reaction. One person in the group explained his way of entering on breakouts. I'll try to explain it as I remember. Let's say the Nikkei Mini runs up to 17000 and goes into a consolidation between 17000 and 16900. On the following breakout we often see a move of 50 yen so. As stated, the move is often too fast to catch. So what he does is, if price movement permits, is to go long and short at say 16995, and places a stop loss at say 17030. If the price breaks out to 17050, he is long and plus 20, and doesn't miss the entry, which is the purpose of this tactic. If it's a false breakout the halts at 17020, he's still flat. His risk is a false breakout that hits his stop. But his experience shows him that the advantage of being in on those moves more than covers the few small losses taken on false breakouts. Anyway, this tactic is not my cup of tea, so I didn't listen that attentively to his explanation and might be missing a part or two. But after his explanation he asked me what this type of position is called in English. I know what it's called in Japanese, but not in my native language of English. Dictionaries list 'cross trade', but that's different. So that's why I asked on ET, but my simple question opened up a can of worms!!
yes you did not listen attentively else you would have been in the position to call out his flawed approach. Here is why: a) If he enters a long AND short at 16995, and if price breaks out and people cannot get filled at anything below 17050 then his long will be in the money by 55 yen. His stop loss at 17030 would have triggered and he would have lost 35 yen on that trade. So his net pnl would be +20 yen. The exact same pnl as if he had placed a stop buy at 17030 and would by the time price reached 17050 be in the money by +20 yen. What is the difference? Only difference is that in the first scenario he paid commission 3 times (and would have to pay one more commission to close out his long later on), in scenario he paid 1 commission (and would also have to pay one more commission to close out his long later on). So, scenario 1 is inferior to scenario 2. b) If markets jumped and despite his stop at 17030 he would have gotten filled at 10750 then the pnl profile is again be identical between scenario 1 and 2 except that his pnl would be zero in either scenario. I still insist you do not understand what your friend is talking about and also do not understand that being long and short at the same time has zero economic benefit, at least none that is pnl related. I am glad this flawed "strategy" is not your cup of tea!
Some remarks: He thinks there will be a break out but does not know if it will be short or long. Because he does not know the direction he takes 1 long and 1 short. Even if there will be a breakout, it can be a false one. So maybe he will go long and close the short and 5 minutes later it seems to be a false breakout and he will be stopped in his long too. He will loose then 2 times. Volatility can kill you in a few minutes. My experinece is that real breakout can be seen in advance. If you cannot see them it is maybe usefull to learn first to identify the trend. Yoy can find scenario's that can confirm this as a good way to trade, but you can also find scenario's that can confirm this as a bad way to trade. All depends of your wishfull thinking, so it is not professional. If you are not able to see which direction the breakout will be it means you have no idea what will happen, in other words you gamble.
I agree with you 100%, and that is why I previously said that often being whipsawed is the disadvantage to this tactic. Also, being able to read the trend, potential breakout, and recognizing a false breakout will eliminate the need to use this type of tactic. Glad to see that there are two of us in this world who can do that!!