Going Long and Short with CFDs
Going long with a CFD means buying a contract to benefit from a rising price. Going short means selling a contract to benefit from a falling price. Neither position gives you ownership of the underlying asset: your result comes from the difference between your opening and closing prices, adjusted for costs. ASIC’s explanation of CFD trading sets out this distinction and warns that these are high risk products.
The directional choice is straightforward. Managing the trade takes more thought. Entry prices, position size, financing and the way you close an order all affect the outcome. This guide focuses on those decisions; the broader CFD trading guide covers the product itself.
For US readers: Standard overseas retail CFD accounts are not a permitted workaround for US trading restrictions. The SEC’s June 29, 2026 order concerning stock CFDs and the CFTC’s action concerning commodity CFDs illustrate the restrictions on offering these products to US retail customers. Dollar amounts below are illustrative, not a statement of eligibility.
Long vs Short CFDs: What Changes?
A long position follows the familiar sequence of buying first and selling later. A short position reverses it: sell to open, then buy to close. “Long” and “short” describe your exposure, not how many minutes or months you intend to hold the trade.
| Trade feature | Long CFD | Short CFD |
|---|---|---|
| Opening transaction | Buy | Sell |
| Closing transaction | Sell the existing position | Buy back the existing position |
| Favorable price movement | Price rises | Price falls |
| Adverse price movement | Price falls | Price rises |
| Price used to enter | Ask, also called the offer | Bid |
| Price used to exit | Bid | Ask |
The difference between the bid and ask is the spread. A long trade must rise far enough for its closing bid to exceed its opening ask before producing a trading profit. A short trade needs its closing ask below its opening bid. IG’s CFD execution examples show how these prices enter the calculation.
This explains why a new position can immediately show a loss. If the quote has not moved, closing it means crossing the spread in the opposite direction. Being correct about the market’s next small movement may still leave you short of covering costs.
Calculating Profit and Loss
For a share CFD where one contract represents one share, the basic calculations are:
Long profit or loss = (closing sell price − opening buy price) × number of contracts.
Short profit or loss = (opening sell price − closing buy price) × number of contracts.
The examples below use hypothetical executable prices. They include the spread through the entry and exit prices, but exclude commissions, financing, dividend adjustments and currency conversion. Do not subtract the spread again. Other contracts may use a point value or multiplier, so check the contract details rather than assuming every CFD represents one unit.
Example: Going Long on a Share CFD
Suppose a share CFD is quoted at a bid of $50.00 and an ask of $50.10. You expect the price to rise and buy 200 contracts at $50.10. Your opening market exposure is:
200 × $50.10 = $10,020.
Later, the quote reaches $52.40 bid and $52.50 ask. You close the long position by selling at $52.40:
($52.40 − $50.10) × 200 = $460 profit before other costs.
If the price falls instead and you sell at a bid of $48.40, the result becomes:
($48.40 − $50.10) × 200 = −$340.
Notice that the closing ask does not enter either calculation. You are selling to exit, so the relevant price is the bid. Using the wrong side of the quote makes the expected result look better than the executable one.
Example: Going Short on a Share CFD
Now suppose you expect the same share to fall. With the quote at $50.00 bid and $50.10 ask, you sell 200 contracts at $50.00.
The market later falls to $47.90 bid and $48.00 ask. You close the short position by buying at $48.00:
($50.00 − $48.00) × 200 = $400 profit before other costs.
If the market rises and you have to buy back at $52.00, the calculation reverses:
($50.00 − $52.00) × 200 = −$400.
Opening a short position does not create a $10,000 cash windfall for you to withdraw. That figure describes the contract’s opening exposure. The trading result is the price difference multiplied by the position size.
How Shorting a CFD Differs from Shorting Shares
In a conventional stock short sale, shares are borrowed and sold, then purchased later to return to the lender. With a short CFD, you enter a derivative contract instead of personally borrowing and delivering shares. The SEC’s introduction to short sales explains the borrowing process and the underlying price risk.
For an ordinary share, the price can fall to zero but has no theoretical upper ceiling. A short share CFD therefore has a finite maximum gain from the price falling, while its market loss has no equivalent ceiling before contractual protections or position closure. That does not mean every retail account can become indebted without limit; account protections are a separate issue.
Short availability is not guaranteed either. A provider may depend on borrowing stock to hedge its exposure. IG’s explanation of market restrictions describes how insufficient borrowable stock can prevent new short CFD positions. Check availability before building a trade around the sell button.
Margin Does Not Cap the Trade’s Loss
Both long and short CFDs use margin: an opening deposit supporting a larger market exposure. As ASIC explains when discussing CFD margin risk, gains and losses depend on the full position, not just that deposit.
Assume a hypothetical 20% margin requirement. The $10,020 long position above would require $2,004 initially. Its $340 trading loss would equal about 17% of that opening margin, despite the much smaller percentage movement in the share price.
The deposit is therefore not a sensible substitute for a loss budget. Work from the planned exit distance and position size, then check whether you can support the margin requirement. The relationship is covered separately in CFD margin and market exposure.
Protections depend on jurisdiction and client classification. Under the FCA’s UK retail CFD rules, providers must apply account margin closeout requirements and negative balance protection. The latter protects against losing more than the funds in the CFD account, not against losing more than the margin allocated to one trade. Professional clients may lose protections available to retail clients.
A stop order is another separate safeguard. A protective stop for a long position normally sits below the entry; for a short position, above it. However, ordinary stops can execute at a worse price during abrupt moves. ASIC’s CFD guide explains the difference between ordinary and guaranteed stops. Guaranteed stops depend on the provider’s terms and may carry a charge.
For execution details, see CFD stop-loss orders and guaranteed stops. A planned $200 loss and a guaranteed $200 maximum loss are not interchangeable descriptions.
Costs Can Differ Between Long and Short Positions
The price calculation is only part of the result. Spreads, commissions and overnight funding can turn a small trading gain into a net loss. The FCA’s review of CFD pricing and value found wide differences in funding charges, including cases where one provider charged for a short position while another would have credited it.
Overnight Funding and Borrowing Charges
Do not assume that going short means receiving interest. Funding depends on the product, benchmark rate and provider’s charges. For share CFDs, stock borrowing costs may also apply. CMC Markets’ holding cost explanation shows how short positions can incur a debit and how borrowing charges can change as demand to short a share increases.
Before holding either direction overnight, check the current rate and its calculation basis. A trade expected to earn $150 deserves another look if its expected holding costs consume much of that amount. The CFD trading costs guide covers the wider fee calculation.
Dividend Adjustments
Share CFDs commonly receive cash adjustments around dividends. Long positions generally receive a credit, potentially reduced by withholding taxes; short positions generally receive a debit. CMC Markets’ share trading FAQ explains this treatment.
Shorting just before the ex-dividend date is not a free way to collect the associated price adjustment. If a hypothetical dividend produces a $1 price reduction and a matching $1 debit per short CFD, those two effects offset before other price movements and costs.
Closing, Reversing and Holding Both Directions
Selling does not always mean opening a short position. If you already hold a long CFD, a sell order may reduce or close it. Likewise, buying may close an existing short rather than establish a new long.
Platform settings matter. IG’s order instructions distinguish “net off” from “force open”: one offsets an opposing position, while the other can create a separate trade in the opposite direction.
Suppose you hold 200 long contracts. Under a netting arrangement, selling 200 closes that exposure. Selling 300 would close the 200 long contracts and leave 100 short, assuming the order executes in full. Under a setting that opens separate positions, the outcome may differ.
When your aim is to exit, use the platform’s close-position function and confirm the remaining quantity. That is clearer than submitting an opposite order and hoping the platform interprets your intention.
Holding equal long and short quantities in the same contract does not create a profit engine. Subsequent price movements largely offset, but charges can continue. The FCA’s findings on matched CFD positions warn about ongoing costs on both sides. An existing loss does not disappear because a second trade has been added.
Using a Short CFD to Offset an Existing Holding
A short CFD can also offset exposure you already own. Consider a simplified example: you hold 200 actual shares and open a short CFD representing 200 shares of the same company.
If the share falls by $2, the holding loses $400 while the short CFD gains approximately $400 before costs and pricing differences. If the share rises by $2, the share gain is offset by the CFD loss. The arithmetic reduces exposure in both directions, not just the unwanted one.
Cash management still matters. The CFD account must support the short position even if the physical shares gain value elsewhere. Before using such a hedge, assess its funding requirements, duration and exit plan as part of your CFD risk management.
Decide the Exit Before the Direction Becomes a Commitment
Before opening either side, write down why the price should move, what would invalidate that view and how long the idea should take to play out. Then calculate the loss at the intended exit using the full contract quantity.
Check the executable entry price, likely costs, short availability where relevant, and whether your exit order will close or open exposure. If the loss is too large, reduce the quantity rather than moving the exit simply to accommodate a larger trade.
The practical distinction remains simple: long benefits from higher prices; short benefits from lower prices. Neither direction is a strategy on its own. The trade needs a reason, an affordable risk budget and a clear way out.