CFD Trading And Shorting Shares

CFD trading is increasing in popularity as more and more private individuals seek to take advantage of the benefits it provides. The first major benefit of CFDs is leverage; that means for a relatively small initial monetary outlay you can take a much larger equivalent position in the market. A second benefit is the extensive range of markets, all available to trade via your desktop PC or smartphone. A third major benefit is the flexibility they provide, including the ability to actually make money from a financial instrument that is falling in value. In shares, this is known as going short.

Why go short?
Share prices fluctuate daily and traditional shares trading involves selecting a company stock that you think is currently undervalued, buying an amount of shares, then waiting for the shares to appreciate in value and selling them for profit. Just as certain stock prices can be described as being undervalued they can also be described as being overpriced. When a company’s share is overpriced it is due to fall and so this is when you could benefit from going short.

Going short: Is it bad?
Due to its unnatural nature short selling often receives bad publicity}. Although there will always be a certain element of doubt it’s very difficult to make a substantial case that short selling on its own can lead a company into bankruptcy. Indeed, it is more likely the fault of the people in charge of the organisation.

How might I get a chance to go short?
Say you’ve been following ‘Company A’ for a couple of years and for the last six months the company has been struggling in difficult trading conditions. Then it releases a profit warning early one Thursday morning. You see your chance and are at this point in a position to go short.

Therefore, because you are CFD trading you are able to quickly open a position and then close if the share price rebounds after a couple of days of falls. Similarly, you are on hand to go short again and make money two weeks later when, as a result of the profit warning, a leading broker agency downgrades Company A.

It’s just an axample of how useful CFDs can be with short selling and market volatility. Discover more about CFDs at www.igmarkets.co .uk.

Always remember that CFD trading can result in losses as well as profits so make sure you understand all the risks involved.


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