What is a Short Position? Short Position Explained for Australian Traders

A short position is a trade that profits when the price of an asset falls instead of rises. Most Australian retail traders open short positions through CFDs, because shorting individual ASX shares directly requires a securities lending arrangement that retail brokers rarely offer.

How a Short Position Works — A Practical Example

Imagine you think the ASX 200 index is overvalued at 7,800 points. You open a short CFD position worth A$10,000, effectively betting the index will drop.

The market falls to 7,644 points — a 2% decline. Your short position gains roughly A$200 (before spread and overnight fees), because you sold high and can now buy back lower.

If the ASX 200 instead rallied 2% to 7,956, you would lose around A$200. Because CFDs are leveraged, your margin requirement might only be A$500, but your profit and loss are calculated on the full A$10,000 exposure.

Why Short Positions Matter for Australian Traders

Short selling lets you hedge or profit in falling markets — useful during corrections, rate-hike cycles, or commodity slumps. Without the ability to short, you can only make money when prices rise.

ASIC regulates retail CFD shorting tightly. Leverage on short stock CFDs is capped at 5:1, and brokers must offer margin call protections and negative balance protection. This means your losses on a short trade cannot exceed your account balance, even if a stock gaps up overnight.

A well-run broker will clearly display borrowing costs, overnight swap charges, and any hard-to-borrow fees before you confirm the trade. A poor broker buries these costs, which can quietly erode your short position day after day.

Short Position vs Long Position

A long position profits when prices rise — you buy first and sell later. A short position is the opposite: you sell first (borrowing the asset via your broker) and buy back later at a lower price. Long positions have unlimited upside and capped downside; short positions have capped upside (price can only fall to zero) but theoretically unlimited downside if the asset rallies. Shorts also typically pay overnight financing rather than receive it. For most Australian traders, understanding the asymmetric risk of shorts is the more important factor to check.

What to Check When Comparing Brokers

• Range of shortable instruments — Confirm which shares, indices, and commodities can be shorted. ASIC-licensed brokers like IC Markets offer thousands of shortable CFDs across global markets.
• Overnight swap rates — Short positions can earn or pay swap depending on interest rate differentials. Check the broker’s swap table before holding shorts overnight.
• Borrow availability on shares — Some small-cap ASX shares are hard to borrow. A broker like Pepperstone publishes daily borrow lists so you know what’s available.
• Stop-loss and guaranteed stop options — Because short losses can spike on a gap up, look for brokers offering guaranteed stop-loss orders on volatile instruments.
• Margin requirements — Use a margin calculator to confirm the deposit needed before opening a short, especially with ASIC’s 5:1 cap on share CFDs.

Trading CFDs carries significant risk. 70–80% of retail accounts lose money. ASIC regulated. We may earn commission via links.