Falling markets can create panic among investors, but for CFD traders, they also present opportunity. Thanks to the ability to go short with CFDs, you can potentially profit from market declines by speculating on falling prices.
Short-selling is the practice of opening a position that profits when an asset’s price drops. In CFD-trading, this is straightforward. You simply open a sell position on the instrument you expect to fall, and close it once the price drops — capturing the difference.
Why Trade Falling Markets?
- Shorting CFDs allows you to profit in bear markets
- Great for hedging existing long positions
- Markets often fall faster than they rise, offering quick moves
- A valuable skill in volatile or uncertain conditions
How Shorting Works in CFD-Trading
Let’s say you believe a stock index is likely to fall. You open a short CFD position. If the index drops, you close the trade and the difference between the entry and exit point (minus any costs) is your profit.
You don’t borrow shares, and there’s no physical settlement — everything is handled within your trading platform.
Tools for Identifying Bearish Setups
- Moving averages (crossovers and downward slopes)
- Resistance levels and failed breakouts
- Bearish candlestick patterns (e.g. engulfing, evening star)
- MACD or RSI divergences pointing to weakness
Strategies for Shorting with CFDs
- Trend-following: Enter short positions in confirmed downtrends
- Breakdowns: Trade breakdowns below support levels after consolidation
- News-driven trades: Negative earnings reports, geopolitical tension, or economic data could drive sharp drops
Managing Risk in Falling Markets
- Always use a stop-loss to limit upside risk
- Beware of sudden reversals or short squeezes
- Manage position size carefully and avoid overleveraging
- Stay informed about economic data releases that can shift sentiment
Advantages of CFDs in Down Markets
- No need to borrow assets or worry about availability
- Ability to trade short-term moves, intraday or multi-day
- Apply leverage if desired (responsibly)
- Combine with long positions to create market-neutral strategies
Capitalise on volatility in index markets
Take a position on moving index prices. Never miss an opportunity.
71% of retail CFD accounts lose money.
Conclusion
Being able to profit from falling markets is a key advantage of CFD-trading. Shorting isn’t about pessimism — it’s about flexibility. With the right setup and sound risk management, bearish trades can complement your overall strategy and open new trading paths.
