Short Selling CFDs

matthewdean · 5 August 2011

Hello,

I am just wondering if someone can give me a little more information on selling short?

I have been using a CFD Demo account for some time now and have made some large profits selling short on market opens but I could not quite
get my head around how I could sell a share for price that the stock never traded at.

Consider this example:

On the 4/8/11 the stock XXX Closed at $50.00 per share. Now I decide that tomorrow that stock is going to fall so I put a deal ticket in
to sell 1000 shares of the stock XXX at the price $49.95. On the 5/8/11 The share opens at $42.95 the following morning but my Sell
was still executed at $49.95 so I buy the shares back at the price of $42.95 per share having made a nice profit on the fall.

As you can read the example shows the I was able to sell the shares at an amount that was never traded, is this possible?

Thank you greatly.
Md.

skc · 5 August 2011

matthewdean said:
Hello,

I am just wondering if someone can give me a little more information on selling short?

I have been using a CFD Demo account for some time now and have made some large profits selling short on market opens but I could not quite
get my head around how I could sell a share for price that the stock never traded at.

Consider this example:

On the 4/8/11 the stock XXX Closed at $50.00 per share. Now I decide that tomorrow that stock is going to fall so I put a deal ticket in
to sell 1000 shares of the stock XXX at the price $49.95. On the 5/8/11 The share opens at $42.95 the following morning but my Sell
was still executed at $49.95 so I buy the shares back at the price of $42.95 per share having made a nice profit on the fall.

As you can read the example shows the I was able to sell the shares at an amount that was never traded, is this possible?

Thank you greatly.
Md.

That is not possible. If it is can you pls PM me the name of the provider?

matthewdean · 5 August 2011

skc said:
That is not possible. If it is can you pls PM me the name of the provider?

IG Markets, I guess it's no secret on who they are... I've looked further into the trade history to see whats happening and I'll use my trade on BHP as an example.

At 9am this morning I put the deal ticket in to sell 1000 shares of BHP at a price level of $40.05 (It had closed the previous day at $40.06).

At Market open today (5/8/11 the deal was executed and immediatly I was sitting at roughly $1800 profit as BHP had opened today 38.05. So within minutes I bought the share back to make a nice profit.

THIS IS ALL IN DEMO MODE.

investorpaul · 5 August 2011

They prob let you do it in the demo account so you think your a gun trader.

Then you go live and burn out within a week.

investorpaul · 5 August 2011

matthewdean said:
IG Markets, I guess it's no secret on who they are... I've looked further into the trade history to see whats happening and I'll use my trade on BHP as an example.

At 9am this morning I put the deal ticket in to sell 1000 shares of BHP at a price level of $40.05 (It had closed the previous day at $40.06).

At Market open today (5/8/11 the deal was executed and immediatly I was sitting at roughly $1800 profit as BHP had opened today 38.05. So within minutes I bought the share back to make a nice profit.

THIS IS ALL IN DEMO MODE.

Ha you beat me to it..... those CFD providers are cheeky buggers!

They can get away with anything in the demo account and those who dont pick up on could easily get burned going live

matthewdean · 5 August 2011

investorpaul said:
Ha you beat me to it..... those CFD providers are cheeky buggers!

They can get away with anything in the demo account and those who dont pick up on could easily get burned going live

I was thinking that might of been the case... So I'm guessing In a "real account" with "real money" the 1000 shares would have sold for the opening price of $38.05?

Cheers.

satanoperca · 5 August 2011

matthewdean said:
I was thinking that might of been the case... So I'm guessing In a "real account" with "real money" the 1000 shares would have sold for the opening price of $38.05?

Cheers.

Or lower

barney · 5 August 2011

matthewdean said:
I was thinking that might of been the case... So I'm guessing In a "real account" with "real money" the 1000 shares would have sold for the opening price of $38.05?

Cheers.

Mat,
Your order would not be filled as "your" price was above the open of $38.05 and therefore would not be triggered ....

matthewdean · 5 August 2011

barney said:
Mat,
Your order would not be filled as "your" price was above the open of $38.05 and therefore would not be triggered ....

Thank you for your replies

Gringotts Bank · 8 March 2012

What happens if you're short a stock and it gets a takeover offer and opens +50% next day? Do guaranteed stops cover that scenario? What about without a gsl?

skyQuake · 9 March 2012

Gringotts Bank said:
What happens if you're short a stock and it gets a takeover offer and opens +50% next day? Do guaranteed stops cover that scenario? What about without a gsl?

Yes with GSL, without GSL margin call i'd imagine.

However most CFD providers don't let you put GSLOs on stocks that are under t/o. Eg. BBG

skc · 9 March 2012

Gringotts Bank said:
What happens if you're short a stock and it gets a takeover offer and opens +50% next day? Do guaranteed stops cover that scenario? What about without a gsl?

You mean like the time I shorted MCC the day before it got a takeover offer?

You lose money. A lot of it...

Gringotts Bank · 9 March 2012

skyQuake said:
Yes with GSL, without GSL margin call i'd imagine.

However most CFD providers don't let you put GSLOs on stocks that are under t/o. Eg. BBG

Thanks for that info sky. Since the gsl's are a fair bit more expensive, I wonder if there's any scenario where you could safely consider not using one? There will always be stocks like skc's MCC trade where the t/o offer comes without any media warning or rumour.

Trembling Hand · 9 March 2012

Gringotts Bank said:
Thanks for that info sky. Since the gsl's are a fair bit more expensive, I wonder if there's any scenario where you could safely consider not using one? There will always be stocks like skc's MCC trade where the t/o offer comes without any media warning or rumour.

I don't see the point in them, GSLs, unless you are crazy leveraged.

Gringotts Bank · 9 March 2012

TH, MCC gapped up 36%, and I'm wanting to use CFDs for a short-only system.

Trembling Hand · 9 March 2012

Gringotts Bank said:
TH, MCC gapped up 36%, and I'm wanting to use CFDs for a short-only system.

So?

You have a stop at 6% move (about 2 ATR). It jumps 36% you have a 6R loss. no big deal unless your nutz leveraged and 10R is account ruin.

Gringotts Bank · 9 March 2012

I've deleted that post. You're right, the system can handle it. Thanks TH.

The big drop was AIO 3-for-1 share consolidation, which was not fixed in my data! Not MCC.

skc · 9 March 2012

Gringotts Bank said:
Thanks for that info sky. Since the gsl's are a fair bit more expensive, I wonder if there's any scenario where you could safely consider not using one? There will always be stocks like skc's MCC trade where the t/o offer comes without any media warning or rumour.

It depends on your trade frequency, average win etc.

I've done over 1500 pair trades (i.e. 3000 trades) and I've been caught on the wrong side of a takeover once, and the wrong side of shock profit downgrades twice. Have also been caught on the right side a few times as well.

With average position ~15-20% of account a 30% move is 5-6% of account like TH said.

The MCC was a particularly small position... and I wouldn't say it was without media warning or rumour. They were takeover target some time ago and so not really that surprising to see someone comes back to take another bite. I broke my system's rule of not shorting anything that even smell like a takeover target.

Anyhow, GSL costs ~0.3% on the large caps and must be put some distance away. With my trade frequency and position size it would not have been worthwhile at all. In fact, if I pay 0.3% additional cost on every trade I would have paid ~1.5-2x my account size in GSL fee, while saving me a total ~10-15% in loss

Gringotts Bank · 9 March 2012

What sources would be best to use as a way of keeping an eye out for t/o activity on a stock?

Fundamentals aren't really my thing, so it would be nice to input my list of stocks to short for the week and know with a click which to avoid.

skc · 9 March 2012

Gringotts Bank said:
What sources would be best to use as a way of keeping an eye out for t/o activity on a stock?

http://www.businessspectator.com.au/bs.nsf/wheelsanddealshomepage?Openview&count=15

AFR

SMH

The Australian

Mates in Private Equity (sidenote... This is just a joke but I am guessing you can't get done for insider trading by NOT shorting a potential takeover target).

Short Selling CFDs

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