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Strategies

CFDs enable clients to potentially profit in any market conditions

Shorting Strategies (Profit from a fall in price)

CFDs are ideal when you want to profit from an expected fall in share values or a specific company decline.

In the UK, taking a ‘short’ (bearish) position in physical shares can be both cumbersome and expensive. It means rolling your position every 20 days. Each time you do this, you pay broker commission and stamp duty. The possibility of leverage is also restricted.

By contrast, a short CFD can be held indefinitely without further costs, in fact, you actually receive interest for as long as you run the position. You open by ‘selling’ a CFD in the share you are expecting to fall and later close your position by buying it back, hopefully at a lower price.

Long/Short Strategy 1 (hedging)

You may wish to take up a short CFD in shares where you already hold physical long positions, but where you are bearish on the shares’ short-term prospects. You may wish to avoid an outright sale of shares so as not to incur Capital Gains Tax liability.

If the ‘hedge’ is correct, you will be able to buy your short CFD position at a lower level and the profit achieved on your CFD will offset the paper loss on your physical shareholding.

Long/Short Strategy 2 (pairs trading)

A commonly used strategy is to trade one share against another. This approach – buying one CFD while selling another – is known as pairs trading.

Examples