Take a short-selling position
Going short in bearish times is one of the most common bear market strategies among traders. As a trader, you’ll short-sell when you expect a market’s price will fall. If you predict this correctly and the market you’re trading on does decline in value, you’ll make a profit. If the price rises instead, you’ll make a loss.
Shorting can be done via CFD trading with us. You take a position on price movements without taking ownership of the underlying asset. They’re also leveraged, meaning you’ll only need to put up a small initial deposit (called margin) to open a larger position. However, leveraged trades are inherently risky, as both profits and losses are calculated on the total position size, not your margin amount.
Also, short positions can in theory incur unlimited losses if the underlying share appreciates in price instead of falls. This is because there’s no limit to how high a market can rise. This, plus leverage, means having a risk management strategy in place is crucial. Part of this means attaching stops to your positions.
There are many ways to short, depending on which market you want to trade.
Indices – going short on indices is a common way to trade in bearish times, as these track major domestic and global stock markets like the ASX 200, known on our platform as the Australia 200, the S&P 500 and the FTSE 100 and enable you to track the price movements of an entire index in one go.
This means it could be less risky than putting all eggs in one basket by taking a position against one share. Shorting major indices comes with low spreads and is the only way to speculate on the real index price directly. Plus, with us, you can short key indices 24/7, including at the weekend.1
Shares – you might short-sell shares if you think an individual share has further to fall in a downturn. Let’s say you think rising interest rates spell bad news for the technology sector. You might short a tech share that you think is exposed to this downside. If you predict a drop in price correctly, you’ll make a profit off your position.
ETFs – like indices, ETFs give you the opportunity to go short across a number of shares all at once. An ETF’s exposure can span an index or a whole sector or industry. Going back to the tech sector example, ETFs might enable you to spread risk by shorting a tech ETF that tracks multiple shares rather than shorting just one.
If you’re looking to short an index specifically, indices trading might be better for you. That's because the price will be based on the real underlying index price (unlike ETFs) and there are likely to be lower spreads.
Commodities – you can go short on the price of commodities like oil, gold or silver. For example, you may believe supply is going to outstrip demand for soybeans in the near future. So you’d decide to short the price of soybeans. If you’re correct and the commodity’s price falls, you’ll profit.
