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* BUYING a CFD - To make a profit, you want the price of the underlying security, index or asset to rise.

* SELLING a CFD - To make a profit, you want the price of the underlying security, index or asset to fall.

A position is closed by you entering into an equivalent and offsetting position in the relevant Share CFD. Closing your position may result in a profit or loss being realised on your account.

You may close part of an open position by executing an equivalent and offsetting position of a lesser amount than the open position.

* "Going long" and making a profit

Telstra Share CFDs are trading at (bid/offer) AUD$4.99/AUD$5.00. You want to buy AUD$5,000 (1,000 Share CFDs) worth of Telstra CFDs at the offer price of AUD$5.00 with the view that the share price of Telstra will rise.

Opening Buy:

The Telstra price rises to $5.20. You decide to close your position by entering an equal but opposite trade, Telstra Share CFDs are trading at (bid/offer) AUD$5.20/AUD$5.21.

Closing Sell:

Profit/loss Calculation:

[(5.20 – 5.00) x 1,000] – AUD$20 = AUD$180 Profit

* "Going long" and incurring a loss
Telstra is trading at (bid/offer) AUD$4.99/AUD$5.00. You want to buy AUD$5,000 (1,000 Share CFDs) worth of Telstra CFDs at the offer price of AUD$5.00 with the view that the share price of Telstra will rise.

Opening Buy:

You buy 1,000 Telstra Share CFDs @ AUD$5.00. You are charged commission of AUD$10.00.

The Telstra price falls to $4.80. You decide to close your position by entering an equal but opposite trade, Telstra Share CFDs are trading at (bid/offer) AUD$4.80/AUD$4.81.

Closing Sell:

You sell 1,000 Telstra Share CFDs @ AUD$4.80. You are charged commission of AUD$10.00.

Profit/loss Calculation:

[(Sell Price - Purchase Price) x Size of deal] – Commission = Profit / Loss

[(4.80 – 5.00) x 1,000] – AUD$20 = AUD$220 Loss

* "Going short" and making a profit
Telstra Share CFDs are trading at (bid/offer) AUD$5.00/$5.01. You want to sell AUD$5,000 (1,000 Share CFDs) worth of Telstra CFDs at the bid price of AUD$5.00 with the view that the share price of Telstra will fall.

Opening sell:

The price of Telstra falls to AUD$4.80. You decide to close your position by entering an equal but opposite trade, Telstra CFDs are trading at (bid/offer) AUD$4.79/$4.80.

Closing buy:

Profit/Loss Calculation:

[(5.00 - 4.80) x 1,000] – AUD$20 = AUD$180 Profit

* "Going short" and incurring a loss
Telstra Share CFDs are trading at (bid/offer) AUD$5.00/$5.01. You want to sell AUD$5,000 (1,000 Share CFDs) worth of Telstra CFDs at the bid price of AUD$5.00 with the view that the share price of Telstra will fall.

Opening sell:

The price of Telstra rises to AUD$5.20. You decide to close your position by entering an equal but opposite trade, Telstra CFDs are trading at (bid/offer) AUD$5.19/$5.20.

Closing buy:

Profit/Loss Calculation:

[(5.00 - 5.20) x 1,000] – AUD$20 = AUD$220 Loss

As you can see the process of going short is simply the exact opposite of going long.

You do not need to know anything special in order to understand trading the short side for profit. With a bit of practice and going through some examples you will see how easy it is to profit from a down trending market using short selling

More about CMC Markets CMC Markets is a pioneer of CFD trading in Australia. Our goal is to empower Australian traders by giving you access to CFDs over Australian and global markets and the ability to trade on leverage and potentially profit in almost any market condition. We run regular CFD introduction seminars and education courses around Australia for traders new to CFDs and are committed to providing a cost effective CFD trading service. Click here for more info or to start trading CFD's.