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'Shorting' is otherwise known as 'short-selling'.
It can apply to most financial assets, like shares, commodities and Forex.
Short-selling involves selling an asset that you don't own, with the intention of buying
it back at a lower price later.
In summary, 'shorting' means speculating on a decline in price.
Prices go Down as well as Up
Investors have a naturally positive bias, preferring to buy and hold shares, watching
the price rise and their capital grow.
This stems from the conventional share-dealing mindset. With CFDs, however, you can benefit
from both rising and falling prices on a host of products - Shares, FX, Indices, Commodities.
Profits when Prices Fall
When disaster strikes, as it did for BP in the Gulf of Mexico. If you understand the
mechanics of shares, I am sure you expected BP's share price to fall.
You understand that prices usually rise on good news and fall on bad news.
If you know that profits can be made when prices rise, you'll appreciate that they can
also be made when prices fall.
It's Simple - Just Press Sell!
It's well known that prices tend to fall more quickly than they rise. 'Shorting' via CFDs
simply involves hitting the Sell button instead of Buy. Remember, when you're short, price
rises will result in losses.
Short-selling can be used to either hedge/offset existing positions against losses, or to take
an outright negative view on the price.
A Powerful Tool
It's a powerful tool, but some will choose to shun the option to trade Short, preferring
not to contribute to a share price's fall. In practice, however, short-selling helps
keep markets liquid. Why restrict yourself to a long-only trading
strategy and watch long positions suffer when markets fall?
Setting yourself up for a fall can be profitable. Don't rule it out!