Online Stockmarket Trading Update

Unfortunately, markets and prices don’t always go up. There are periods of time where prices fall and where going long or buying doesn’t work. With CFDs you have the opportunity to profit from a fall in prices as well as a rise in prices. To profit from a fall in prices is said to be going short or short selling.

If a CFD trader believes prices are falling they can sell a CFD first at a high price in order to buy it back later at a lower price. In order to do this they may borrow the CFD from their CFD provider and sell it before buying it back at a later date. The CFD trader would then benefit from the difference in the price they bought and the price they sold the CFD.

This may seem a little complex at first however the concept is that you sell first and buy second, hopefully selling at higher price and buying at a lower price. Some examples may help.

 CFD Example – Going short and making a profit

Going short’ is simply opening a short “sell” CFD position to profit from a fall in prices

 Steve saw that Lihir Gold (LGL) had broken key support and looked set for a pullback. Steve places a sell order for 35000

LGL shares at the current market price of $2.78. The face value of the trade is $97,300 and the margin rate on STO is 10%.  Therefore $9730 ($97,300 x 10%) is required as margin to open the position. The trade is placed and Steve holds a short LGL CFD position with a face value of $97,300

 Closing the trade – Buying 35,000 Lihir Gold (LGL)

However if the trade had gone against your initial view and you decided to close the position when LGL was trading at $2.82, you would have lost $1514 inclusive of costs.