Short Selling in CFDs
Whether the market is going up or down, CFDs give investors the opportunity to participate in the market trends.
In traditional stock trading, investors buy low and sell high in an attempt to earn a profit in an upward trending market. However when a market is falling traditional investors would wait for the next opportunity to buy.
One of the benefits of CFDs is that investors can short-sell at a higher price and buy it back when it reaches a lower price to earn a profit.
CFD presents investors an opportunity to participate in the market trends whether it is a bull or bear market, even though certain stock exchanges may pose regulations that restrict short selling. For example, the ASX discourages naked shorting.
A CFD trading platform allows clients to short-sell using CFDs without having to borrow shares or own the underlying. When a client wants to short-sell via a CFD trading platform, they simply sell first by selecting a sell inputting the details of the desired trade and clicking the submit order button.
The platform will run a check to ensure the CFD is available for shorting and then the order will be accepted. If there the particular CFD is not available for shorting the order will be rejected.
As an added convenience, clients can call up the CFD Dealing Desk to enquire about the short-sell quantity available before submitting the order.
A CFD trading account typically allows investors to buy long and sell short using one account, which centralises the profits and losses and allows clients to easily change between trading strategies.
Another benefit of using CFDs is that profits/losses are credited/debited to the client’s account immediately after the position has been liquidated, whereas in some exchanges, regulations state that profits/losses would be credited/debited to/from the account after trade settlement which can be up to 3 days depending on the exchange being traded.
Clients should be aware that short positions may be subjected to force-closure if shares used for CFD hedge is being recalled by the lender.