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What difference going long and going short makes to your CFD positions

by , 22 May 2015

When you enter a contracts for difference (CFDs) trade, you enter an agreement to exchange the difference between the closing price of a contract and the opening price of a contract.

So how does this work in practice? And what other factors do you need to consider when you trade CFDs?

Read on to find out…


The different outcomes of trading CFDs


As with other derivatives, when you trade CFDs, you can either go long (buy) or go short (sell) the underlying financial instrument.

The stance you take makes a difference to how the financing of your trade works and if a company pays dividends whilst you’re in a trade.


What happens when you’re in a long CFD trade?


If you put a long CFD trade on, you want the underlying share price to rise.

If the share price does rise, it means you’ll receive the closing daily difference in price. But if the share price falls, you’ll pay the closing daily difference in price.

When you’re in a long CFD trade, you pay the daily financing charge.

And if the company pays a dividend when you’re in a long CFD trade, you’ll receive the cash equivalent of the dividend amount.


What happens when you’re in a short CFD trade?


If you put a short CFD trade on, you want the underlying share price to fall.

If the share price does fall, it means you’ll receive the closing daily difference in price. But if the share price rises, you’ll pay the closing daily difference in price.

When you’re in a short CFD, you receive the daily financing charge.

And if the company pays a dividend when you’re in a short CFD trade, you’ll pay the cash equivalent of the dividend amount.

So there you have it. What difference going long and going short makes to your CFD positions.

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What difference going long and going short makes to your CFD positions
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