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Risk Warning
You can go short as easily as you can go long by trading CFDs and can take a negative or a positive view on a share.
Trading an Equity CFD is very similar to normal share dealing. The CFD trade is essentially a synthetic equity position and the price of the CFD will exactly mirror the underlying equity price. However, you do not have to pay the full value of the shares, instead you put up a deposit (margin) which is a pre-determined percentage of the full contract value. The margin required will depend on the market capitalisation and volatility of the share.
You decide that Vodafone shares are overpriced and are going to fall. You call your account manager at Prime CFDs and execute a trade to sell short at the market price of the underlying shares or better.
| Share price of Vodafone |
115.00p |
| Number of shares | 10,000 |
| Value of position | £11,500 |
| Commission |
-£57.50 (0.005) |
| Initial margin requirement (5% deposit) | £-575 |
| Share price of Vodafone |
105p |
| Number of shares | 10,000 |
| Value of position |
£10,500 |
| Commission |
-£52.50 (0.005) |
| Financing cost (position held over 2 nights)* |
+£1.10 |
| Total costs | -£108.90 |
| Initial margin requirement released (5% deposit) | £575 |
| Total profit after costs | £891.10 |
| Percentage profit |
154.97% |
This example is obviously a favourable outcome.
If the share price had moved against you, the leverage effect would have magnified your losses.
* Overnight Financing
If you hold a Short CFD position open overnight you receive financing based on sterling LIBOR and the closing value of the shares. In this example the financing rate at Prime CFDs is LIBOR - 3%. LIBOR is 4.75% and the closing price of Vodafone on the day of the opening trade is 115.00p.
So financing charge rebate = 10,000 x 115.00p x 1.75% (4.75% + -3%) = £201.25 per year/365 days = £0.55 per day.
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Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily a guide to future performance. Trading in these markets is generally considered to be suitable only for the more experienced investor as it carries a high degree of risk. An investor may not receive back the amount of their original investment and in certain circumstances may be liable for a sum that is greater than their original investment. If in any doubt, please seek independent financial advice.