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Is it Possible to Short Sell Using CFDs on the Local Stock Market?
by Ashley Jessen
Imagine being able to sell something you don't own with the opportunity to buy it back at a cheaper price. Imagine if you could sell your lawn mower to your neighbor for $400 while you were overseas for 6 months and then buy it back off him when you got back for $300. A tidy $100 profit and you still have your lawn mower!
Short selling Contracts for Difference on the local stock market is actually very easy and involves nothing more than what I described above. In order to short sell you simply sell the stock first in the hope to buy it back at a cheaper price anytime in the future.
Can I short sell the Top 20 ASX Stocks on the Australia Stock Market?
Absolutely. Every CFD broker in Australia will usually allow you to short sell anywhere from 150 stocks to over 300 depending on their borrowing capacities with their institutions. Many professional Day Traders are constantly on the lookout for solid short opportunities as the profit potential can be much greater when stocks fall quickly.
Are there differences in short selling between a Market Maker and a Direct Market Access Broker?
Yes there can be. A Market maker is able to offer you whatever they want but a smart operator will need to hedge their portfolio and whilst Market Maker CFD brokers do hedge they don't always hedge 100% of their orders into the real market. As a result, any excess they have leaves them exposed. Should those stocks that they can't physically short sell themselves fall considerably then their exposure will grow daily. Their only protection is via the futures market and at best that may not cover them enough.
What if their CFD list says a particular stock cannot be short sold?
What many people don't realize is you can actually give your CFD broker a call and ask if they can short sell a stock and very often you'll find they can, allowing you to take that position. Most CFD brokers will charge you additional financing due to their higher costs of purchasing the stocks but at least you are in your position.
As a general rule its best to stick to the higher liquidity stocks like the top 100 ASX stocks when shorting selling. This will greatly increase your chances of exiting if and when your position moves for you or against you quickly. Always remember the number 1 rule of trading success is capital preservation so start small and build you way up.
About the Author
Discover the Funniest example of learncfds.com/. for Quick Profits you will ever read with a very easy to understand and well laid out example of How To Short Sel.. Learn more about the CFD revolution by going to learncfds.com/..
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