What is Short-Selling?
Short-selling is a time-tested strategy used by traders to profit when the market goes down or to protect their investments. While it might sound complex at first, the concept is simple, and that’s exactly what we will walk you through here.
Short-selling involves speculating on a decline in the price of an asset. It’s commonly used by traders who believe an asset, such as a stock, index, commodity, or cryptocurrency, is overvalued or due for a pullback.
For example, if a trader believes Tesla's stock is priced too high compared to its peers, they may open a short position to benefit from a potential drop in price. Short-selling can also act as a hedge, helping to protect against potential losses in a portfolio by taking an opposing market position.
How Does Short-Selling Work?
Traders typically execute short selling on assets like shares. To short a stock, a trader will first borrow the shares from a broker. After borrowing the shares, they will immediately sell the shares and look to purchase them back later at a lower price. If the asset does fall in value, as they anticipated, the trader will pocket the difference between the selling price and purchase price after returning the shares to the broker.
Another way to benefit from the decrease in the price of an asset is via derivative products like CFDs. With this trading method, you can trade the price movements of an asset without having to own it. So, when a trader expects the price of an asset to fall, they can simply open a sell position with a broker. This selling method is often preferred among traders, as it’s more straightforward than physically acquiring an asset.
What Is an Example of a CFD Sell Position?
A profitable sell example:
Imagine that Ford shares are trading at $14. You believe the price is likely to fall, so you decide to short 100 shares via CFD (Contract for Difference). This means you are speculating on the price going down without actually owning the shares.
The next day, Ford’s share price drops by 5% to $13.30.
Since the market moved in your favour, you made a profit on the difference:
- • $14 - $13.30 = $0.70 profit per share
- • $0.70 x 100 share = $70 total gain
A losing sell example:
Now imagine that Coca Cola shares are trading at $55. You believe the stock is overvalued and likely to drop, so you decide to short 100 shares via CFD.
Instead of falling, the stock price rises by 2% reaching $56.10 the next day.
Since the market moved against your position, you incur a loss on the difference:
- • $56.10 - $55 = $1.10 loss per share
- • $1.10 x 100 shares = $110 total loss
Advantages & Disadvantages of CFD Short-selling
Advantages
- • Profit from falling asset prices.
- • No need to own the asset.
- • Trade with leverage for increased exposure.
- • Effective as a short-term hedging tool to protect yourself from short-term market volatility.
Disadvantages
- • High exposure to losses if your trade moves against you
- • Swap fees may apply for positions held overnight
How to Sell a CFD Instrument with easyMarkets
Create an account and log in
Sign up and access your easyMarkets account on web or mobile.
Choose your instrument
We have 275+ instruments to trade from, including currencies, cryptos, shares, indices, commodities, and metals.
Time to go short
Click the 'SELL' button to go short on your selected instrument.
Set your stops and limits
Set stop-loss and take-profit levels to help manage risk by automatically closing trades to limit losses or secure profits at predetermined price points.
Monitor your trade
Track the performance and adjust if necessary.
Close your position
If the asset falls as expected, you’ll profit. If it rises instead, you’ll incur a loss.
Short-selling is a time-tested strategy used by traders to profit when the market goes down or to protect their investments. While it might sound complex at first, the concept is simple, and that’s exactly what we will walk you through here.
Short-selling involves speculating on a decline in the price of an asset. It’s commonly used by traders who believe an asset, such as a stock, index, commodity, or cryptocurrency, is overvalued or due for a pullback.
For example, if a trader believes Tesla's stock is priced too high compared to its peers, they may open a short position to benefit from a potential drop in price. Short-selling can also act as a hedge, helping to protect against potential losses in a portfolio by taking an opposing market position.
Selling FAQs
If you go blindly into a sell position without understanding what it is and how it works, then it can be considered very risky. However, if you have a clear trading strategy and use proper risk management tools, this can limit your exposure and reduce the likelihood of losses. With easyMarkets, you can take advantage of innovative tools such as negative balance protection, and Guaranteed Stop Loss with No Slippage*.
easyMarkets doesn’t charge commissions. You only pay the spread and, if held overnight, a swap fee.
Begin trading with as little as $25.
Traders may look to sell an asset when news or data suggests it's overvalued or that its performance could weaken. This might include poor earnings forecasts, negative guidance, or broader downturns affecting the sector.
These are just a couple of common examples; however, every trader should always do their own research and assess the risks before deciding to sell.
Forex, shares, indices, commodities, metals, cryptos – you name it. If it’s tradable, you can likely short it.
We’re a regulated broker with 20+ years of experience. We’re licensed by CySEC, ASIC, FSCA, FSA, and FSC, and offer platforms including our Web and App platforms, MT4, MT5, and TradingView integration.
More importantly, we give traders access to exclusive risk management tools, like Guaranteed Stop Loss with No Slippage* and Negative Balance Protection, to trade with greater confidence.
*Guaranteed Stop Loss with no Slippage is only available on easyMarkets web & app trading platform. Activate it with wider spread for total risk control.
