RE: How does shorting work?17 Nov 2020 21:57
You borrow a share from a company to sell and promise to buy it back later hopefully at a lower price to hand back to them. A contract for difference CFD is one of the ways this is done, spread betting (I believe) is another, or is at least a way to profit from a falling share price. CFD I think have tax implications SB does not in the UK.
When selling a share through a CFD you should pay attention to the buy and sell price, there will be a gap or spread, the wider this is the more the share has to move in your direction before you even turn a profit, you not only need the share direction to be right, but you also need to beat the spread, these positions can be leveraged, multiplying your profit or your loss.
When buying shares the loss is limited to the amount of money you invest, when selling them the price increase is potentially unlimited and there may not be anyone around to buy from when you need to pay it back, this can result in your position closing. Also were a company to get bought out for a much higher price than where you sold from any stop losses you set would I assume be meaningless and you could be on the hook for thousands to your broker.
This is just my understanding, do your own research, this is not advice.