Why do CFD traders go short?
"To short" is a trader’s or investor’s term to short sell a financial product. "To short" is the opposite of going long. Going long is the term used for when a trader or investor buys low and aims to sell higher. Going long is very common and is the standard strategy of investors. "To short", the trader is simply aiming to sell high and buy at a lower price to make a profit. A simple example of shorting is if you think BHP is going to go down, you can sell them at $46.00 and then try to buy them back at $40.00. You DON’T have to own the stock before you short a BHP CFD.
We try to teach our clients about shorting the market as we see it as a vital tool. We are of the belief that all our CFD clients should understand shorting and should use the strategy in their CFD trading. An example of this is when we find that our clients have too many long positions we try to get them to hedge their positions by selling either an individual stock or the index. The ability to short the index is vital as you can go short without having the risk of an individual stock being taken over.
We suggest shorting 10-20% of your total long positions. Keep in mind this strategy changes all the time and depends on your individual trading style. There will be a time where traders should look at being short a higher percentage of their portfolio and the ability to change this percentage is now very easy with the use of shorting the index.
It is very important that every CFD trader learns what shorting is and how to short for the long term performance of their CFD portfolio.
Hamish McCathie, Director, CFD Trading
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