Shorting is often called a young person’s game because many older and possibly wiser have lost their shirts shorting and won’t do it anymore.

So why not just use ETF’s as a short to hedge out the risk? That way a single stock short won’t blow up your portfolio.  A lot of portfolio managers do use ETF’s, but there is a different kind of danger in using ETF’s to hedge – the diversification benefit.

Single stocks tend to go down much more than indices because indices are made up of lots of stocks and the diversification of the index causes the index to go down less, so even though it may appear that a portfolio is hedged, the real net exposure (longs minus shorts) is likely much higher than it appears.

So while shorting individual stocks has risks, shorting ETFs carries its own set of risks too.