Short Selling CFDs involves selling shares you do not own then buying them back to make a profit from a falling price. This ability allows you to profit from negative price movements and hedge the value of your physical shares and/ or Self Managed Super Fund.
Short selling a CFD is a flexible way to benefit from a falling share price. The lower transaction costs and lower margin requirements make CFDs an ideal way to take advantage of falling markets.
Short Selling Case Study
While reviewing the chart Steve notices that ANZ has broken a key support level of $24.40 on 8th February and he decides to open a short CFD position of 2,000 ANZ shares at $24.40.
ANZ |
Date | High | Low | Close |
21-Feb-08 | $22.37 | $20.83 | $22.00 |
20-Feb-08 | $22.95 | $21.90 | $22.00 |
19-Feb-08 | $22.88 | $22.53 | $22.60 |
18-Feb-08 | $22.89 | $22.41 | $22.46 |
15-Feb-08 | $24.03 | $23.56 | $23.91 |
14-Feb-08 | $24.50 | $23.63 | $24.44 |
13-Feb-08 | $25.19 | $23.60 | $23.80 |
12-Feb-08 | $25.33 | $24.46 | $25.30 |
11-Feb-08 | $25.55 | $24.56 | $24.80 |
8-Feb-08 | $25.69 | $25.20 | $25.60 |
The chart below illustrates the support level broken at $24.40 where 2,000 ANZ Share CFDs were sold and the subsequent closure of the short position at $21.60.
Trade Example
8 Feb 2008 | Short Sell 2,000 ANZ @ $24.40 | $48,800 CR |
Commission ( 0.1%) | $48.80 DR |
21 Feb 2008 | Buy 2,000 ANZ @ $21.60 | $43,200 DR |
Commission ( 0.1%) | $43.20 Dr |
| PROFIT from trade | $5,600CR |
| Less COMMISSION (0.1%) | $92DR |
| Plus Interest Received* | $77.41 Cr |
| Total Profit | $5,585.41Cr |
|
Interest Calculation
The table below illustrates the interest calculation for each day the position is held overnight.*In this example, interest is credited to your account at the rate of 4.5% p.a. (RBA – 2.5%/ 365) based on the total value of the position each day the position is held overnight.
ANZ |
Date | High | Low | Close | Interest Received* |
21-Feb-08 | $22.37 | $20.83 | $22.00 | |
20-Feb-08 | $22.95 | $21.90 | $22.00 | $5.42 |
19-Feb-08 | $22.88 | $22.53 | $22.60 | $5.57 |
18-Feb-08 | $22.89 | $22.41 | $22.46 | $5.54 |
17-Feb-08 | | | | $5.90 |
16-Feb-08 | | | | $5.90 |
15-Feb-08 | $24.03 | $23.56 | $23.91 | $5.90 |
14-Feb-08 | $24.50 | $23.63 | $24.44 | $6.03 |
13-Feb-08 | $25.19 | $23.60 | $23.80 | $5.87 |
12-Feb-08 | $25.33 | $24.46 | $25.30 | $6.24 |
11-Feb-08 | $25.55 | $24.56 | $24.80 | $6.12 |
10-Feb-08 | | | | $6.31 |
9-Feb-08 | | | | $6.31 |
8-Feb-08 | $25.69 | $25.20 | $25.60 | $6.31 |
Total Interest |
|
|
| $77.41 |
Short Selling to protect your physical Shares
Short selling can also be used to protect the value of your physical shares. This is referred to as hedging. Hedging allows you to retain your holdings while protecting the value from falling prices. Refer to our Hedging case study for more information.
Benefits of Short Selling
- Profit from falling share prices
- Receive interest on total value of the position at 4.75%
- Protect the value of your physical shares