Short-selling stocks VS CFDs

[____________]

I have been doing some research about equity trading, and thinking about getting into it maybe in the future. But I have a doubt I couldn't yet resolve.

I saw that a lot of people look for short selling stocks and I am also interested in doing that (mostly with cheap stocks) if I ever start trading equities. I understand that this is not so easy and most brokers wont allow it since borrowing the shares can be difficult.

I know one advantage of CFDs is that you can use margin, but lets ignore that since I believe that with proper risk management, margin can be quite irrelevant, one could risk the same on either equity or CFDs trading when managing risk (and having enough money).

My question is: Why people look for short selling stocks (with borrowed shared) when they can just short sell CFDs? (if you are not US citizen)

 

[Pferd]

I have been doing some research about equity trading, and thinking about getting into it maybe in the future. But I have a doubt I couldn't yet resolve.

I saw that a lot of people look for short selling stocks and I am also interested in doing that (mostly with cheap stocks) if I ever start trading equities. I understand that this is not so easy and most brokers wont allow it since borrowing the shares can be difficult.

I know one advantage of CFDs is that you can use margin, but lets ignore that since I believe that with proper risk management, margin can be quite irrelevant, one could risk the same on either equity or CFDs trading when managing risk (and having enough money).

My question is: Why people look for short selling stocks (with borrowed shared) when they can just short sell CFDs? (if you are not US citizen)

CFDs are an OTC (Over the counter) product which is not clearly regulated and its transparency is questionable to say the least. Really depends on how serious your broker is. If you trade small amounts and can accept wide stop losses, CFDs are fine. If you are profesional investor with large amounts of money at stake, there are better ways to trade the markets like options strategies or directly with the shares.

 

[____________]

CFDs are an OTC (Over the counter) product which is not clearly regulated and its transparency is questionable to say the least. Really depends on how serious your broker is. If you trade small amounts and can accept wide stop losses, CFDs are fine. If you are profesional investor with large amounts of money at stake, there are better ways to trade the markets like options strategies or directly with the shares.

Thanks for your reply, I haven't done much research on options yet, I will add that to my todo list. Mind if I ask why one would need wider stop losses when dealing with CFDs?

Also, do large profesional investors are into short selling stocks? Since the main issue when short selling a stock is borrowing the shares, I imagine big investors don't really use it that much since brokers would have a limited amount of shares to borrow, plus the risk of not being able to cover a big short position will be greater. I am more interested in the penny stocks (or at least stocks trading below $10) side of this.

 

[Pferd]

1.- Because the brokers "magically" spike positions against you. Whether this is science or fiction nobody knows, but I have seen so many examples of this that if you trade shares with CFDs you should have it in mind and trade accordingly.

2.- Although they are some funds and institutional investors which are allowed to have only long positions, yes, there are funds which follow a strategy in shorting shares. There are even famous investors who only take short positions. Furthermore, there are "big" people, ie Carl Icahn who have a long position in one company and cover/hedge the position either with options or even a short in FX, in case they see themselves at risk with the currency exchange. So basically the answer to your second question is yes.

 

[scottuk99]

Why don't you look at spreadbetting equities, will be a lot simpler than CFDs and you can short them just as easily as going long.You can dip your toes in the water spreadbetting and can day trade or medium term trade. Can get in and out of a trade without the fees of CFD while starting out until you decide on how you want to trade

 

[____________]

Why don't you look at spreadbetting equities, will be a lot simpler than CFDs and you can short them just as easily as going long.You can dip your toes in the water spreadbetting and can day trade or medium term trade. Can get in and out of a trade without the fees of CFD while starting out until you decide on how you want to trade

Do you have any recommended links/readings to learn about spreadbetting equities? Which brokers allows spreadbetting?

 

[gokstad]

I think this libor+, this overnight charges that you have to pay even when you have enough money in your account, this is abusing. It's almost impossible to became a winner trader on the long term. This financing system will always make you lose more, or at least you have to gain 4% in every trade or win 70% of the trade's you enter. It's dificult to create a winning trading plan with these costs. I think you will spent less and win more money paying commissions for a stocks and futures broker like IB. What you think?

 

[gokstad]

How much will you spent if your selling position is going well for 3 weeks? 20% of your gain?

 

[MoneyRush]

How much will you spent if your selling position is going well for 3 weeks? 20% of your gain?

I think if anyone can answer this question he would not sit in the internet and share this info :whistling