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Short position explained for CFDs at Plus500

Your expert
Eszter Z.
Fact checked by
Adam N.
Updated
3w ago
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What does having a short position for CFDs mean?

Taking a short position when trading CFDs is a risky and speculative strategy, which you use when you expect the price of the CFD units to drop. However, there are some key issues to keep in mind when going short at Plus500:

  • When trading CFDs, taking a short position is similar to taking a long position as in you will not own the underlying asset.
  • But there could be surprises, such as being deducted funds due to a dividend payment if you take a short position.
  • When shorting, in certain cases you could be receiving the financing rate instead of paying it.
  • Taking a sort position is a risky strategy especially because of leverage, which could amplify your profits but also multiply your losses.
  • You need to understand the asset, and take into account that prices historically tend to go up so you need to know what and why you are shorting.

If you are confident that you understand how CFDs and short positing works, take a look at what Plus500 has to offer. Read on if you want to learn more about shorting via CFDs, or check our top list for CFD brokers. Don't forget, BrokerChooser only recommends brokers that are regulated by at least one top-tier authority, making Plus500 a legit choice in our eyes.

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82% of retail CFD accounts lose money

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82% of retail CFD accounts lose money

How does a short position for CFDs work?

Taking a short position is a less conventional and more complex strategy than taking a long position. With CFDs it means allowing you to profit from falling prices without owning the underlying asset. So if you expect a decrease in the value of an asset, you have the option to take a short position. When you "go short", you don't actually own the asset - which is the case with CFDs anyway -, instead, you borrow it from a broker with the intention of selling it and subsequently buying it back at a lower price.

Here's how it works:

  1. You borrow the underlying asset from your broker, and your broker lends you the specific number of CFD units representing the underlying asset.
  2. You sell the borrowed CFD units. You immediately sell them on the market at the current market price. This establishes your short position.
  3. If the price of the underlying asset decreases after you've opened your short position, as you expected, you can buy back the CFD units at the lower price, allowing you to profit from the price difference. This is typically done within a short timeframe. The profit is determined by the difference between the opening and closing prices of the CFDs, multiplied by the number of CFDs. Keep in mind, if prices go up instead, this price difference will mean a loss for you.
  4. To close your short position, you buy back the same number of CFD units you initially sold. You basically return the borrowed CFD units to your broker.
  5. Keep in mind that regardless of whether or not you made a profit, you are still obligated to repay the borrowed assets.

Taking a short position on CFDs gives traders the opportunity to make a profit when markets are falling. Some long-term investors use this feature as a hedging tool to protect their profits. CFD trading is risky, especially because of the leverage, which allows you to take a larger position with a smaller initial fund. There are different ways to mitigate your risks. Setting your leverage size manually can also help better control your risks.

Unfortunately, Plus500 does not give the option of changing the automatically set level of your leverage. Make sure to use other risk management tools to keep your risks in check, such as a stop loss order, or taking a smaller position.

Going short is a complex and very risky trading strategy so you need to have a good understanding of the underlying asset and the price movements. There are various tools, such as charting and research tools at Plus500 which can help you study the markets, and make you a better trader. We also checked if Plus500 has a demo account where you can practice trading without real money.

Plus500 charting and research tools
Recommendation
No Yes Yes
Fundamental data
No No Yes
News quality
Mid-range Mid-range Great
Charting quality
Great Great Great
Research user-friendliness
Great Great Great
Technical indicators
110 68 85
Demo account
Yes Yes Yes

Data updated on March 20, 2024

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82% of retail CFD accounts lose money

How does a short position make money?

CFDs have complex fee structures with commissions, financing rates and spreads. Below, you can see the fees associated with CFD trading at Plus500. We'll explain how it is different from taking a long position, which is where you expect that the price of the underlying asset will increase.

These are the additional considerations to keep in mind when taking a short position with CFDs:

  • If you are in a short position on the ex-dividend date, you could be responsible for paying the dividend. These payments must be paid from your account, so checking dividend dates is vital to avoid liabilities.
  • In CFD trading an interest rate, or financing rate is charged on long positions held overnight. For short positions, in certain cases the financing rate could be paid to you. This is usually based on the reference rate minus 2-3 percentage points. The reference interest rate is traditionally based on major banks' overnight lending rate.

CFD fees you should take into account at Plus500:

Here is a breakdown of some benchmark fees at Plus500 for different CFD products, compared to the broker's closest competitors. The benchmark fees include all fees (spread, commission, financing rate), calculated for a $2,000 position, with 20:1 leverage: open, hold for 1 week, and close.

Key CFD fees at Plus500 in 2024
S&P 500 index CFD fee
$4.3
$3.7 $4.0
Euro Stoxx 50 index CFD fee
$4.3
$4.4 $4.0
Apple CFD fee
$23.1
$8.5 $5.0
Vodafone CFD fee
$19.1
-
$3.9
EURUSD spread
0.8 1.0 0.6
GBPUSD spread
1.3 2.0 1.3
S&P 500 CFD commission
No commission is charged No commission is charged No commission is charged
Euro Stoxx 50 CFD commission
No commission is charged No commission is charged No commission is charged

Data updated on March 20, 2024

What is an example of short selling CFDs?

Let's assume you think that the price of shares in Company Made Up, will decline due to lower than expected profit figures.

You decide to open a short CFD position for the value of $10,000.

To open this position, you are required to deposit an initial margin of 10%, which amounts to 10,000 x 0.1 = $100.

Plus the commission charged by the broker is 0.1% of the value of the $10,000 contract which would be 0.001 x $10,000 = $10.

After 30 days, the share price of Company Made Up drops by 20%, resulting in a gain of $10,000 x 0,2 = $2,000. To close the position, you buy back the CFD contract incurring a commission of $10. Assuming the interest rate or financing rate you receive is $15. Your profit from the transaction would be $2,000 plus $5 ($10 commission + $15 interest received), which amounts to $2,005.

Watch out! If the trade goes against you, your losses could multiply due to the leverage and potentially even exceed your initial investment.

Looking for a CFD broker?

If you are looking for the brokers that offer the best CFD trading conditions, check our top recommendations of the best CFD brokers in the world.

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Author of this article

Eszter Zalán
Eszter Zalán

Eszter is a former Editor and Financial Journalist for BrokerChooser. She wrote and edited BrokerChooser's content from 2021 onwards, bringing her more than a decade-long experience in journalism to the team. She has covered world affairs and several financial crises, and dove deep into SEO and coding to make BrokerChooser's content more accessible to users.

Everything you find on BrokerChooser is based on reliable data and unbiased information. We combine our 10+ years finance experience with readers feedback. Read more about our methodology.

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