Shorting shares vs. CFDs

[grah33]

hi
i'm interested in shorting shares since the markets been going down. i can do it with cfds though as well i've heard, but my skills are with shares. i have amibroker and i can scan shares and look for downtrends. i don't want to learn too much new stuff, so should i look for a broker that allows to short shares directly , or through cfds. if it's just as easy with cfds (not much extra to learn) i might take that path since cmc is in front of my eyes and they allow for trading cfds cheaply and cfds seem to have a good wrap. also, are there any cheap brokers who allow shorting of shares that people know of?
thanks

 

[prophesa]

hi
i'm interested in shorting shares since the markets been going down. i can do it with cfds though as well i've heard, but my skills are with shares. i have amibroker and i can scan shares and look for downtrends. i don't want to learn too much new stuff, so should i look for a broker that allows to short shares directly , or through cfds. if it's just as easy with cfds (not much extra to learn) i might take that path since cmc is in front of my eyes and they allow for trading cfds cheaply and cfds seem to have a good wrap. also, are there any cheap brokers who allow shorting of shares that people know of?
thanks

Guys like CMC Markets and IG Markets allow you to short sell shares via CFD's at reasonable brokerage. You can't short shares directly, it has to be done via CFD's.

 

[blue0810]

...You can't short shares directly..

Yes you can if your broker provide shorting facility.

 

[prophesa]

Yes you can if your broker provide shorting facility.

Do you know of any that do?

 

[blue0810]

Do you know of any that do?

Macquarie prime, IB etc

 

[prophesa]

Macquarie prime, IB etc

I've got an IB account. Never knew you could short shares with. They don't even allow trading US CFD's.

 

[grah33]

i've never used cfds but shares. don't know if using cfds to short has cons, or if it involves a learning process, which puts me off a little. i like the idea of just dealing with shares, keeping it simple. on the other hand maybe using cfds is just as good and simple also, and using cmc to do that is a nice quick solution which i'm looking for. and it's cheap (brokerage costs are critical for me)

??

 

[skyQuake]

i've never used cfds but shares. don't know if using cfds to short has cons, or if it involves a learning process, which puts me off a little. i like the idea of just dealing with shares, keeping it simple. on the other hand maybe using cfds is just as good and simple also, and using cmc to do that is a nice quick solution which i'm looking for. and it's cheap (brokerage costs are critical for me)

??

Shorting shares via cfs are pretty cheap, also they usually have a huge range of availability. As to mechanics, if your trading DMA cfd its essentially the same as shares.

 

[grah33]

Shorting shares via cfs are pretty cheap, also they usually have a huge range of availability. As to mechanics, if your trading DMA cfd its essentially the same as shares.

u mean cfds (correct me if i'm wrong). is cmc CFD DMA based? even if not, i think i should go that way. hopefully later i can leverage a little when i know what i'm doing (don't worry, i wont wreck my little savings)

 

[cynic]

u mean cfds (correct me if i'm wrong). is cmc CFD DMA based? even if not, i think i should go that way. hopefully later i can leverage a little when i know what i'm doing (don't worry, i wont wreck my little savings)

You do of course realise that, when entering naked short positions, losses are potentially unlimited?

Even stop orders (unless guaranteed) are not always effective loss limiters.

 

[AlterEgo]

is cmc CFD DMA based?

No, they arn't, and for that reason I would not use CMC for CFD's.

 

[grah33]

You do of course realise that, when entering naked short positions, losses are potentially unlimited?

Even stop orders (unless guaranteed) are not always effective loss limiters.

no i don't know about that. can you elaborate and let me know what to do to avoid such disaster.




and what is DMA and why important? i 'm new to trading and jsut want to make a couple of extra bucks when the market is in a down-turn.


and what brokers are there for short selling shares/cfds at a cheap rate which is important for me?

 

[cynic]

no i don't know about that. can you elaborate and let me know what to do to avoid such disaster.

In relation to the potentially unlimited losses that can arise from short positions, one only needs to consider what happens when the market rises:

How high can it typically go?

If it goes up by 1%, can it rise further?

If it goes up by a further 10%, can it rise yet further?

If it doubles, can it rise even further?

Given that the answers to all of these questions is yes, the next thing to consider is what happens to a short position during such rises:- naturally, the open position moves against the trader.

Newcomers to the market often make the mistake of thinking that placement of a stop order is sufficient to limit their losses in the event of such adverse movements.

They could not be more seriously mistaken.

A stop order (unless specifically guaranteed by the broker/provider) will afford zero protection whilst the market is closed (or suspended from trading). When trading resumes the price is typically at a different price to the previous close. If the opening price happens to be inferior to the trader's stop level, then the trader incurs a greater than anticipated loss.

Depending upon the trader's chosen market, periods of market closure (accompanied by their associated opening gaps) can occur weekly, daily, or in some instances several times a day.

The only surefire way (to the best of my knowledge) of guarding against disasters, is to be neutrally positioned at all times!

However, this typically means being out of the market at all times!!

The next best option is to learn about methods of risk quantification and management. Strategies of spreading with inversely correlated trading instruments are amongst the styles of approaches that I typically encourage aspiring traders to investigate.

and what is DMA and why important? i 'm new to trading and jsut want to make a couple of extra bucks when the market is in a down-turn.

When one opens a DMA ("Direct Market Access") CFD position it results in an equivalent position being placed in the real market by the CFD provider/broker. The provider is therefore unable to derive additional benefit from client losses.

With OTC ("Over The Counter") CFD positions, the provider/broker has sole discretion concerning the management of any resultant exposure. They may choose to bet (rather than hedge) against the success of some (or perhaps even all) of their clients' postions. Furthermore, the CFD providers can quote their own prices, irrespective of the prices available in the real market, thereby potentially serving their own interests at the expense of their clients.

Please be aware that the vast majority of traders I've known, also wanted to make a few extra dollars and were shocked at just how quickly their dream turned into a very costly nightmare.

At the outset, many of those traders believed that their experience was, somehow, going to be quite different from that of the many others that had failed before them.

and what brokers are there for short selling shares/cfds at a cheap rate which is important for me?

That's a question that I'm somewhat reluctant to answer.

One of the more reputable brokers, offering services to Australian clients, has been significantly hampered by regulatory changes in recent years, and yet, at the same time, it seems that, other providers are allowed to continue operating whilst including clauses allowing plenty of scope for conflicts of interest in their offerings to their clients:

"... is a CFD issuer, not a broker. Accordingly, you will be trading CFDs directly with us, and not on any financial market. As a CFD issuer, we set the prices that refer to, but may not always be the same as, those in the Underlying Market. We will always act as a principal, not as an agent, for our own benefit in respect of all CFD transactions with you...

...may at its sole discretion, Hedge our liability to you in respect of your CFD positions by undertaking transactions in the Underlying Reference Instruments in the Underlying Markets. However, we have no obligation to do so and are under no obligation to inform you as to whether or not we have done so. These trading activities may affect (positively or negatively) the prices at which you may trade CFDs with us..."

 

[Triathlete]

i 'm new to trading and jsut want to make a couple of extra bucks when the market is in a down-turn.

I am a bit curious graph33,

You have mentioned that you are a new trader so I am assuming that you must be already quite successful trading long positions,

are you able to elaborate on your current win/loss and profit/loss percentages?

if at this early stage (new trader) you already want to get into highly leveraged instruments....

Everyone to there own but some of the questions you have already asked tells me that you are not ready to trade CFDS.....and agree with cynics reply to you , ensure you understand the risks involved ...good luck anyway and hope you are successful.

 

[grah33]

can u give me an example of what kind of loss i might be exposed to occasionally? say the position size i want to sell is 1k-2k (i pay less because of margin cfd), what might it go up to?

i'm a new trader with less than 10 positions, just started trading on really small positions recently while the market was going down, going long, so that wasn't a good idea. but i cut the losses early and only lost a little. and that should reduce cause i've got a winner going. and i've got the risk management going now. i'm using very small positions now since i'm still in the learning phase, so wont get much profit.

if non-dma cfds weren't enough predictable, i don't think people would be buying them. i hope they aren't too bad. i got alot of time on my hands (due to enemployment) so i really want to get some skills now to short the market. by not risking excessively and trading small amounts in the beginning i hope to avoid any catastrophe. if i do get stung bad by a cfd (just once) i'll probably shelve it for a while and just trade long until i got more money behind me.

thx everyone

 

[VSntchr]

can u give me an example of what kind of loss i might be exposed to occasionally? say the position size i want to sell is 1k-2k (i pay less because of margin cfd), what might it go up to?

Depends on the universe of stocks you are trading. If you are shorting, then usually* the stock has to be within ASX300 to be available so I'll assume its within this universe (*usually in my experience). Don't fall into the trap of thinking that larger cap stocks do not gap. Stocks within the ASX300 can and do gap overnight by large amounts. For a recent example check out the rise in TOL when the takeover announcement came through. $6.08 one day and $8.90 the next morning. You don't have to expect this to occur often, but you need to ensure that any single event such as this will not cause your account irreparable damage.

 

[grah33]

thanks for the example. i think if i do this i need to use small positions only (always less than i do with long positions) and avoid using the available leverage.

so that is e.g.
2k shares worth borrowed, and sold at 2K
bought later at about 3k
1k loss.
(for TOC move from 6.08 to sudden 8.95)

i can definitely live with this. and i would start out trading smaller positions, and avoid leverage for a long time. might have to consider not using the smaller sub 50 cent? shares, in case they rise too quickly.

 

[grah33]

also, while i'm here, what other equities /markets can i trade when the asx market is going down? maybe some that aren't as risky, or that i can trade long? not meaning though to detract from my main question about shorting cfds (or shares) and its risks and so on

 

[CanOz]

When i first started trading, back in 2006...i turned a 5000 dollar account into a 17000 account in a few months. I was pretty confident, despite not knowing anything about risk management. I signed up for a CFD account and proceeded to lose almost everything.

I would go into this with small size, and the ability to hedge off any short positions with longs on IB.

I'm sure Peter2 will have some good advice here too....likely not going to be what you want to hear, but what you need to hear.

 

[grah33]

When i first started trading, back in 2006...i turned a 5000 dollar account into a 17000 account in a few months. I was pretty confident, despite not knowing anything about risk management. I signed up for a CFD account and proceeded to lose almost everything.

I would go into this with small size, and the ability to hedge off any short positions with longs on IB.

I'm sure Peter2 will have some good advice here too....likely not going to be what you want to hear, but what you need to hear.

maybe u were leveraging. i won't do that. and if i start losing money i wont keep going. i'll just shelve it and wait for the market to start going up again.