| Short Selling used to be the domain of only the | | | | Your goal when short selling with CFDs is to sell |
| professional or sophisticated investors/traders | | | | say at $12.00 with the hope of buying it back at a |
| who had access to a full service broker and didn't | | | | cheaper rate of say $10.00 and profiting the $2.00 |
| mind paying the exorbitantly high brokerage rates. | | | | difference. Whilst most people try to complicate |
| Since the introduction of CFDs around the world | | | | the process, short selling is just the exact |
| for the retail trader, we now all have access to | | | | opposite of trading long and you'll pick it up very |
| the simplest possible way to short sell for profits. | | | | quickly. |
| So what exactly is short selling? | | | | Why is my potential loss unlimited? |
| The ability to short sell is the process of selling | | | | As with trading long, trading short involves using |
| something you don't own with the hope to buy it | | | | sensible stop loss strategies and effective money |
| back at a cheaper price sometime in the future. | | | | management. The biggest downside with short |
| As opposed to products like Futures or Options, | | | | selling is the potential for unlimited loss as a stock |
| there is no time expiry on a Contract for | | | | can continue to rise much more than you and I |
| Difference so you can hold it for as little or as | | | | have money to cover. When trading long the |
| long as you like. | | | | worst that can happen is the stock goes to zero |
| What are the costs involved when looking to sell | | | | and you lose everything but with short selling the |
| short? | | | | position can continue to rise against you for a |
| The CFD brokers actually pay you for short selling | | | | long, long time exposing you to potentially |
| which usually startles most people when they | | | | unlimited losses. Some of the greatest portfolio |
| hear that. If you are trading an index CFD or a | | | | blowups of all time involve short selling. |
| commission free product, then there are no | | | | The rule of thumb with trading generally is to |
| brokerage fee's associated and you normally earn | | | | always protect your downside risk, trade within |
| interest for every day you hold the position short. | | | | your means and always use stops and sensible |
| It's an amazing concept and one that most people | | | | money management. If you stick to these broad |
| struggle to get their head around. | | | | and effective rules, you won't be too far away |
| Selling first and buying back later (hopefully | | | | from consistently making money in the markets. |
| cheaper) | | | | Good luck with your trading. |