How does it work when you short sell a company? who are you selling too? what are you selling? I use CMC markets for cfds and it seems like you actually are selling to people who are physically buying these shares, but I have no idea exactly what I am selling to these people. Are they really receiving any shares? how can they when I don't own them to begin with?
Short selling CFDs - how does it work?
- Thread starter slackjaw
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u r borrowing the shares from the broker with the requirement u will return them at a future date.
an analogy:
one weekend u ask your n'bour if u can borrow their mower.
they lend it to u but ask u to give it back next weekend.
u agree.
looking at the mower u r sure u can sell it for $150 and b4 the week ends buy it back for $100,
which u do, putting $50 in your pocket and returning the mower back to your n'bour
james
** with CFDs there is no ownership, only rights to P or L
an analogy:
one weekend u ask your n'bour if u can borrow their mower.
they lend it to u but ask u to give it back next weekend.
u agree.
looking at the mower u r sure u can sell it for $150 and b4 the week ends buy it back for $100,
which u do, putting $50 in your pocket and returning the mower back to your n'bour
james
** with CFDs there is no ownership, only rights to P or L
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not sure of the mechanics at the providers end,
but someone on the forum will know
but someone on the forum will know
MichaelD
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You are selling nothing to nobody.
The CFD provider is simply taking your bet.
The CFD provider is simply taking your bet.
Where does the market depth come from then? is it the same market depth as I should read from any other kind of broker? or is it specific to CMC markets? When I buy, does this actually eat into the market depth? or is the market unaware that a purchase even took place?
I know that when I do place an order, the price is adjusted depending on how many I want, and how many are available and for what price.
I know that when I do place an order, the price is adjusted depending on how many I want, and how many are available and for what price.
MichaelD
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CMC make up the market depth and the price you get more-or-less but not quite based on the real market depth. None of it reflects any true market reality.
i.e. execute exactly the same trade at the same time on CMC and in the real market and they would not get quite the same price. There's almost always a bit of a "haircut" taken on trades, strangely enough always in the market maker's favour.
CMC (and all other market market CFD providers) merely need to provide a simulacrum of the real market in order to attract undercapitalized (and thus overleveraged) punters more than willing to be efficiently relieved of their money.
The real market is completely unaware of a trade taken on CMC as it simply does not exist anywhere except in CMC's systems - you are NOT buying or selling shares to another person as you are in the real market, you are dealing with CMC and CMC alone.
i.e. execute exactly the same trade at the same time on CMC and in the real market and they would not get quite the same price. There's almost always a bit of a "haircut" taken on trades, strangely enough always in the market maker's favour.
CMC (and all other market market CFD providers) merely need to provide a simulacrum of the real market in order to attract undercapitalized (and thus overleveraged) punters more than willing to be efficiently relieved of their money.
The real market is completely unaware of a trade taken on CMC as it simply does not exist anywhere except in CMC's systems - you are NOT buying or selling shares to another person as you are in the real market, you are dealing with CMC and CMC alone.
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FAQ
Share FAQs
The key issues concerning Share CFDs, including market prices, online dealing and transaction charges. If your query isn't here please contact us.
Are CFDs like options or warrants?
While options and warrants are leveraged instruments they are quite different from CFDs in several key respects: they have an expiry date, a fixed exercise price, you do not receive adjustments, price movements are not generally equal to actual changes in the underlying share price, and they usually lose value every day (often referred to as time decay). Warrants in Australia cannot be sold short and so the price is often controlled by the warrant issuer. As a private trader this puts you at a distinct disadvantage. By contrast the price of our share CFDs is always the same as the share price quoted in the market.
Do all CFD providers offer CFDs at the market price?
Some CFD providers will only offer CFDs on share prices derived from the market price. Under the 'market maker' model, the CFD provider has a super-low headline commission rate but adds a spread to the exchange price, so your total dealing cost is the 'low' headline commission rate plus the added spread or 'skewed' price. If you receive re-quotes on your CFD orders the chances are that you are receiving a price that is skewed against you - and hence costing you money.
However, when you trade CFDs with IG Markets you only deal at the genuine market price, so you don't have to worry about these hidden costs.
Likewise IG Markets always quotes a live two-way (bid and offer) price, whereas some other CFD providers will only quote a bid or an offer price depending on whether you want to go long or short.
What is DMA and is it important?
DMA stands for Direct Market Access. It means that when you place a Share CFD order, a corresponding order is placed on the stock exchange. When that order is executed your CFD order is automatically filled. So, trading with a DMA platform lets you see the entire order book.
IG Markets has its own DMA platform: L2 Dealer.
With IG Markets you always deal at the market price of the share regardless of which of our platforms you use. IG Markets is the only CFD provider to offer you a choice of three different dealing platforms: L2, online trading or mobile dealing on Java-based phones.
Is there a limit on the size of my CFD trade?
With Share CFDs, IG Markets will accept a deal of any size that can be traded in the underlying market. Clients wishing to deal in larger volume will often be accommodated and, if unable, we may be able to 'work' an order for you.
Your order will only ever be filled at the exact price quoted, and if your order is rejected we will always tell you why.
Can I see overseas share prices online?
When you open your account you will be automatically set up to view 'Delayed Data' prices from the exchanges. This access is free and you trade on prices with a slight time delay via a free 'snapshot' of the live price. If you wish to trade live data for a particular exchange you are charged a flat fee - this will be refunded at the end of the month if you have placed a minimum number of trades.
How do I know how much commission I will be charged?
The commission that will apply to your trading will be confirmed to you in writing when your account is opened. Our standard rate for Australian Share CFDs is 0.1%. There is no commission on stock indices, FX, oils, and metals, moneymarket or options.
Commission from $8 IG Markets has a minimum commission of just $8 per side for all Australian Share CFDs traded online, via phone or through our DMA platform.
How can active traders reduce their commission?
Our Volume Discount gives a special reduced commission of 0.08% to active traders across the full range of more than 1000 Australian shares. This applies to clients who trade a combined equity value of more than $2m on Australian stocks in a single calendar month.
More...
For all product inquiries please refer to our Product Disclosure Statement and Contract Details
Remember that trading CFDs carries a high level of risk to your capital. Only trade with money you can afford to lose.
Share FAQs
The key issues concerning Share CFDs, including market prices, online dealing and transaction charges. If your query isn't here please contact us.
Are CFDs like options or warrants?
While options and warrants are leveraged instruments they are quite different from CFDs in several key respects: they have an expiry date, a fixed exercise price, you do not receive adjustments, price movements are not generally equal to actual changes in the underlying share price, and they usually lose value every day (often referred to as time decay). Warrants in Australia cannot be sold short and so the price is often controlled by the warrant issuer. As a private trader this puts you at a distinct disadvantage. By contrast the price of our share CFDs is always the same as the share price quoted in the market.
Do all CFD providers offer CFDs at the market price?
Some CFD providers will only offer CFDs on share prices derived from the market price. Under the 'market maker' model, the CFD provider has a super-low headline commission rate but adds a spread to the exchange price, so your total dealing cost is the 'low' headline commission rate plus the added spread or 'skewed' price. If you receive re-quotes on your CFD orders the chances are that you are receiving a price that is skewed against you - and hence costing you money.
However, when you trade CFDs with IG Markets you only deal at the genuine market price, so you don't have to worry about these hidden costs.
Likewise IG Markets always quotes a live two-way (bid and offer) price, whereas some other CFD providers will only quote a bid or an offer price depending on whether you want to go long or short.
What is DMA and is it important?
DMA stands for Direct Market Access. It means that when you place a Share CFD order, a corresponding order is placed on the stock exchange. When that order is executed your CFD order is automatically filled. So, trading with a DMA platform lets you see the entire order book.
IG Markets has its own DMA platform: L2 Dealer.
With IG Markets you always deal at the market price of the share regardless of which of our platforms you use. IG Markets is the only CFD provider to offer you a choice of three different dealing platforms: L2, online trading or mobile dealing on Java-based phones.
Is there a limit on the size of my CFD trade?
With Share CFDs, IG Markets will accept a deal of any size that can be traded in the underlying market. Clients wishing to deal in larger volume will often be accommodated and, if unable, we may be able to 'work' an order for you.
Your order will only ever be filled at the exact price quoted, and if your order is rejected we will always tell you why.
Can I see overseas share prices online?
When you open your account you will be automatically set up to view 'Delayed Data' prices from the exchanges. This access is free and you trade on prices with a slight time delay via a free 'snapshot' of the live price. If you wish to trade live data for a particular exchange you are charged a flat fee - this will be refunded at the end of the month if you have placed a minimum number of trades.
How do I know how much commission I will be charged?
The commission that will apply to your trading will be confirmed to you in writing when your account is opened. Our standard rate for Australian Share CFDs is 0.1%. There is no commission on stock indices, FX, oils, and metals, moneymarket or options.
Commission from $8 IG Markets has a minimum commission of just $8 per side for all Australian Share CFDs traded online, via phone or through our DMA platform.
How can active traders reduce their commission?
Our Volume Discount gives a special reduced commission of 0.08% to active traders across the full range of more than 1000 Australian shares. This applies to clients who trade a combined equity value of more than $2m on Australian stocks in a single calendar month.
More...
For all product inquiries please refer to our Product Disclosure Statement and Contract Details
Remember that trading CFDs carries a high level of risk to your capital. Only trade with money you can afford to lose.
Thanks for the Info Snowman and Michael
Just one thing with your last post Snowman...
Are these all excerpts from IG Markets or from different brokers, as The broker I use CMC markets are using "Market Maker", I thought that was their own program, though of course I could very easily be wrong.
Just one thing with your last post Snowman...
Are these all excerpts from IG Markets or from different brokers, as The broker I use CMC markets are using "Market Maker", I thought that was their own program, though of course I could very easily be wrong.
skc
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I also got confused on this at first, but I think "Market Maker" just happens to be the name of the CMC trading platform software. They could have called it "CMC Betting Central" and it would still be a market maker brokerage model in terms of what they do at their own end.
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Yes, quoted from IG Markets, just click on the green FAQ heading, it is a web link......
MichaelD
Not fooled by randomness
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I trade extensively with IG Markets in market maker mode and understand their trading model quite well and am quite happy trading within their rules of play.
This statement is, however, at best a half truth.
Question:
Here's the underlying depth in the REAL market
Buy - Sell
50 @ 10.00 - 100 @ 10.01
100 @ 5.00
If you were to SELL 100 what price would you get;
a. In the underlying market?
b. with IG Markets?
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