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How to profit from falling share prices using CFDs

by , 30 September 2015

By trading contracts for difference (CFDs) you can magnify your potential gains.

But you don't just have to hope a share price rises, you can profit from a falling share price too.

So how does this work?

Let's take a look…


How to trade CFDs on falling share prices


If you think the price of a share or the value of an index is going to fall, you can short it using CFDs. Shorting works in the opposite way of buying CFDs or going long.

For instance, if you buy CFDs on Company ABC as you think its shares are going to rise in value, you make a profit when its share price rises. You’ll make a loss if the share price falls.

On the other hand, if you think shares in Company ABC are going to fall, you could short Company ABC CFDs. This means you’ll make a profit if its share price falls and make a loss if its share price rises.

When you enter a short CFD trade, you sell something you don’t own and buy it back at a later stage when you close your position.


What to watch with shorting CFDs


Just like entering a long CFD trade, when you put on a short CFD trade, you need to be aware of the risks you’re taking on.

When entering a short position there is the risk the share in question will rise. This means losses. So it’s vital you run stop losses to protect you against this risk and limit your losses.

Instead of shorting specific shares, you may choose to short an index. This can lower your risk as you’re not dependent on the performance of one share, but all the shares in the index.

So there you have it. How to profit from falling share prices using CFDs.

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