How to make money from falling share prices with CFDs
One of the benefits of trading contracts for difference (CFDs) is you can put short trades on.
This means if you think the price of a share is going to fall in value, you can potentially profit from this move by selling CFDs instead of buying them.
But short selling has its risks. So how can you improve your chances of success?
Read on to find out…
Rule #1: Timing
Follow these six rules to improve your chances of success when you short CFDs
When shorting CFDs
you want to ensure you’re doing it at the best time possible, Keith Fitz-Gerald in Money Morning US
explains. So make sure your technical indicators and fundamentals are blaring out a sell before making a decision.
Rule #2: Keep it short-term
It’s best to only hold your short CFD trades for a short period of time. The risks of the share price recovering increase the longer you hold.
Rule #3: Concentrate on bear markets
You can increase your chances of success by shorting when the markets are in a general downward trend. Shorting in a bull market is very risky.
Rule #4: Don’t forget the risks
The overall market has an upward bias. Shorting goes against this and can work against you. When you place short trades, you must be vigilant and use strict stop losses.
Rule #5: Don’t forget about dividends
When you put on a short CFD trade, if the company you’re shorting pays a dividend, you must pay that out of your trading account.
Rule #6: You can’t short all CFDs
From the range of different stocks you can trade CFDs on, you may not be able to short every one of them. Your broker or trading company will be able to tell you which stocks you can’t short.
So there you have it. How to make money from falling share prices with CFDs.