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Shorting a share is often confusing for most traders as the concept is that you must first buy shares in order to sell them. Short sellers make a profit if they can buy a share at a lower price than they sold it for. In the financial markets, you can also sell and then buy.
Look at this example to learn how to trade stocks by going "short".
- If you feel bearish about XYZ shares, give your broker a sell order.
- If the stock is worth $10 and you sell 1,000 shares, you get $10,000.
However, it is not yet your money. Instead, your account now shows that you have -1,000 shares. Until you buy back these 1,000 shares, you do not know whether you will make a profit or a loss on this trade.
- When the share value drops to 9.50 USD, you place a buy order with your broker.
- You pay USD 9,500 for these 1,000 shares. This gives you a profit of 500 USD minus commissions.
Generally, your broker needs to borrow the shares from someone who owns them in order to take a short position in the stock trading markets. If the broker cannot find the required number of shares in your name, you cannot short.
For these reasons, traditional stock brokers do not allow short trading. This is why CFD stock trading platforms are popular with day traders in https://exnesslatam.com/demo-cuenta/, as they offer the flexibility to sell at the touch of a button.
Which stocks can you trade?
When you trade online, you get access to thousands of stocks through today's best stock trading sites. This way, you can create a diversified portfolio of stock CFDs.
Here we have a list of the most popular stock exchanges that traders like to target.
New York Stock Exchange (NYSE)
As one of the most traded exchanges in the world, almost every online broker offers you unlimited access to the NYSE. This is where you'll find the biggest blue chip companies, including Disney, Ford Motors, JP Morgan and others.
NASDAQ Composite
NASDAQ primarily covers the world's major technology companies, for example Apple, Facebook, Netflix, Microsoft and others.
London Stock Exchange (LSE)
LSE hosts all the well-known companies based in the UK. If you want to get involved in the UK economy, the LSE offers British American Tobacco, Barclays, HSBC, BP and more. The FTSE 100 is another popular choice for the UK market as this is the index that covers the 100 largest companies listed on the LSE.
Tokyo Stock Exchange (TSE)
The TSE gives you access to the Asian economies - with big players like Mitsubishi, Toyota, NIPPON and SoftBank.
CFD stock trading
Before we go any further, it is important that we discuss a key term that you need to understand in order to trade stocks effectively - CFDs.
A Contract for Difference (CFD) is a derivative trading instrument that allows traders to speculate on rising or falling share prices. When you trade via CFDs, you do not own the share you are trading. In contrast, CFDs allow you to speculate on the future direction of the share.
On the other hand, you are not entitled to shareholder rights, which means you do not receive dividends. Instead, you earn money from the capital gains you make by selling or buying the share at a higher or lower price than you paid.
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