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Short position explained for CFDs at Questrade

Your expert
Eszter Z.
Fact checked by
Gyula L.
Updated
Jan 2024
Personally tested Personally tested
Data-driven Data-driven
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What does having a short position for CFDs mean?

Taking a short position in CFD trading is a risky and speculative strategy. It means you're betting on the price of an asset to go down. However, there are a few important things to keep in mind if you're thinking of going short with Questrade:

  • When you trade CFDs, going short is similar to going long in that you don't actually own the asset.
  • If you take a short position, you might have to deal with dividends being deducted from your position.
  • But instead of paying the financing rate, you might actually receive it if you go short in certain cases.
  • Going short involves some risk, especially because of leverage, which can boost your profits, but it can also increase your losses.
  • It's crucial to understand the asset you're trading and remember that prices generally tend to go up. So, make sure you know why you're taking a short position.

If you feel confident in your understanding of CFDs and short positions, take a look at what Questrade has to offer. Keep reading if you want to learn more about shorting via CFDs or check out our top list of CFD brokers. Remember, BrokerChooser only features brokers overseen by trusted regulators, so Questrade is a legitimate choice.

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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.

Good news! Questrade allows you to set your leverage level manually.

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 Questrade which can help you study the markets, and make you a better trader. We also checked if Questrade has a demo account where you can practice trading without real money.

Questrade charting and research tools
Recommendation
Yes Yes Yes
Fundamental data
Yes Yes Yes
News quality
Great Great Mid-range
Charting quality
Great Poor Mid-range
Research user-friendliness
Great Mid-range Great
Technical indicators
30 16 55
Demo account
Yes Yes Yes

Data updated on January 4, 2024

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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 Questrade. 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 Questrade:

Here is a breakdown of some benchmark fees at Questrade 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 Questrade in 2024
S&P 500 index CFD fee
$3.6 -
-
Euro Stoxx 50 index CFD fee
-
-
-
Apple CFD fee
$23.5 -
-
Vodafone CFD fee
$34.4 -
-
EURUSD spread
2.1 -
-
GBPUSD spread
2.6 -
-
S&P 500 CFD commission
No commission is charged CFD is not available CFD is not available
Euro Stoxx 50 CFD commission
Europe 50 CFD is not available CFD is not available CFD is not available

Data updated on January 4, 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.

Keep in mind that CFD trading involves risks, and if the trade goes against you, your losses can be magnified due to leverage and potentially 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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