How to Short Stocks in the UK - A Complete Guide
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Quick Answer: How can you Short Stocks in the UK?
To open a short position, investors borrow shares from a broker or investment bank and sell them immediately at the current market price. If the price drops as expected, they repurchase the shares at a lower price and return them to the lender, keeping the difference as profit.
Introduction
Short selling allows UK investors to profit when share prices fall. It involves borrowing and selling a stock, hoping to buy it back cheaper.
This guide explains how shorting works, which platforms support it, the risks involved, and step-by-step instructions for beginners using regulated UK brokers.
Step-by-Step – How to Short a Stock in the UK
Step 1: Choose a FCA-Regulated Broker
Start by selecting an FCA-regulated broker that supports short selling through CFDs or spread betting. Top UK options include IG, Plus500, eToro, Spreadex, and Pepperstone. These platforms offer varying levels of tools, asset coverage, and risk controls. Ensure the broker supports the stock or market you want to short, offers transparent fees, and has a solid reputation. Always verify the broker’s regulatory status on the Financial Services Register before depositing any funds. Beginners may prefer brokers with demo accounts and educational resources to practise before shorting live markets.
Step 2: Open a CFD, Margin, or Spread Betting Account
To short stocks, you must open a derivative trading account — such as CFD, margin, or spread betting — separate from traditional investing or ISA accounts. You’ll need to complete identity verification, submit financial background details, and agree to a risk warning. These accounts use leverage, so brokers are required by law to assess your experience and provide risk disclosures. Approval is usually instant or within 24 hours. You must also deposit the broker’s minimum amount (typically £100–£250) before you can begin opening short positions.
Step 3: Search for the Stock and Select “Sell”
Once your account is funded and active, use the search bar to find the stock, index, ETF, or asset you want to short. Click the asset to view pricing, spread, and margin requirements. Select the “Sell” or “Short” button to open a bearish position. Some platforms may also display historical performance, analyst sentiment, and risk rating. Always check that shorting is available on the specific asset — especially for small-cap stocks, which may not be borrowable or tradable using leverage.
Step 4: Enter Position Size and Apply Stop-Loss
Choose your stake size or position amount carefully, keeping leverage in mind. The broker will display your required margin and estimated profit/loss ranges. Set a stop-loss to limit downside risk and avoid margin calls if the stock rises. Many platforms also let you set take-profit levels to automatically close your position at a target price. Risk management tools like trailing stops and guaranteed stop-loss orders (GSLOs) are especially helpful in volatile markets. Confirm fees such as overnight financing before executing.
Step 5: Monitor the Trade and Close the Position
After your short position is live, monitor it using the broker’s platform or mobile app. If the stock price falls, your trade moves into profit; if it rises, your losses grow and may trigger a margin call. Track related news, earnings reports, or market sentiment that could reverse the trend. You can close the position anytime by clicking “Buy” to cover the short and lock in gains or limit losses. Make sure to understand rollover charges if you keep trades open overnight or longer.
What is Short-Selling and How Does It Work?
How Does Short Selling Work in Simple Terms?
Short selling involves borrowing shares from a broker, selling them at the current price, and then buying them back later at a lower price. If the stock drops, you profit from the difference. It’s a strategy used when you believe a stock’s value will decline.
What’s the Difference Between Shorting and Selling?
Selling closes an existing long position to realise gains or cut losses. Shorting, however, initiates a new position by borrowing and selling shares you don’t own. You aim to repurchase them cheaper later. It’s a speculative strategy, not the same as exiting a traditional trade.
How Do I Short a Stock for Beginners?
Begin by opening a CFD or spread betting account with a UK-regulated broker. Choose a stock, click “Sell,” set your stake and stop-loss. Monitor closely, as losses can exceed your deposit. Start with demo accounts to learn before using real funds on short trades.
What Is the 7% Rule in Stocks?
The 7% rule is a risk management guideline suggesting you should sell or cut a position if it drops 7% from your entry price. While not exclusive to shorting, it helps limit losses. Traders often apply it to long positions to preserve capital.
What Is the Difference Between Going Long and Going Short?
Going long means buying an asset with the expectation that its price will rise. You profit when the value increases. Going short involves selling an asset you don’t own, aiming to buy it back at a lower price. It profits from price declines, not gains.
Can UK Investors Short Stocks with CFDs or Spread Bets?
Yes. UK investors can short stocks using contracts for difference (CFDs) or spread betting accounts. Both methods allow you to speculate on falling prices without owning the underlying asset. Spread betting is also tax-free in the UK for individuals, while CFD gains are taxable.
Where Can You Short Stocks in the UK?
Where Can I Short Stocks in the UK?
You can short stocks using FCA-regulated brokers such as IG, Plus500, Spreadex, eToro, and Pepperstone. These platforms offer CFDs or spread betting for shorting UK and international shares. Always verify margin terms, fees, and asset availability before choosing a broker.
Can You Short on Trading 212, Plus500, or CMC Markets?
You can short stocks on Plus500 and CMC Markets using CFDs. Trading 212’s Invest account doesn’t support shorting, but its CFD account does. All require margin and carry overnight fees. Availability of assets and leverage limits may vary between platforms.
What Type of Account Do You Need to Short?
You need a margin-enabled CFD or spread betting account, not a regular investing or ISA account. These accounts let you take “Sell” positions, use leverage, and access short-only trades. FCA rules require ID verification and a risk disclosure agreement before approval.
Trading Platform Comparison Table
| Platform | Short Selling Available | FCA Regulated | Min Deposit | Instruments | Shorting Instruments | Spread/Commission | Overnight Fees | Trustpilot Score | ||
|---|---|---|---|---|---|---|---|---|---|---|
| IG | Yes | Yes | £250 | 15 | 000+ global markets | CFDs & Spread Betting | Spread-based + Financing | Yes | N/A | |
| eToro | Yes (CFDs) | Yes | £50 | Stocks | ETFs | Crypto | CFDs only | Spread-based + FX/Conversion | Yes | 4.4 / 5 |
| Plus500 | Yes | Yes | £100 | 2 | 800+ instruments | CFDs only | Spread-based | Yes | 4.2 / 5 | |
| Pepperstone | Yes | Yes | None (rec. £200) | Stocks | indices | forex | CFDs & Spread Betting | Commission (Razor) or spread | Yes | 4.6 / 5 |
| Spreadex | Yes | Yes | £1 (rec. £100) | Stocks | indices | FX | Spread Betting & CFDs | Spread only | Yes | N/A |
For our in depth review of the best trading platforms click here.
What Methods Are There for Shorting a Stock?
What Are the Different Instruments Used to Short?
Common instruments for shorting in the UK include CFDs (Contracts for Difference) and spread betting, both available via FCA-regulated brokers. More advanced traders may use put options or inverse ETFs, though these are less common for retail investors. CFDs and spread betting remain the most accessible.
What Are CFDs and How Do They Work for Shorting?
CFDs (Contracts for Difference) let traders speculate on price movements without owning the asset. To short with a CFD, you open a “sell” position. If the price drops, you profit. CFDs also offer leverage, but carry risk, including margin calls and overnight financing fees.
Is Spread Betting a Tax-Free Way to Short?
Yes. Spread betting allows UK traders to speculate on falling prices without owning shares. Profits are tax-free for individuals. You “bet” per point of movement, and can open short positions by selecting “sell.” It’s high-risk, but favoured for short-term strategies and tax efficiency.
Can You Short ETFs or Indices Instead of Single Stocks?
Yes. You can short ETFs, indices, and commodities using CFDs or spread betting. These instruments are often more liquid and diversified than single stocks, making them popular during market downturns. Platforms like IG and CMC offer broad access to short these instruments.
Can I Use Leverage When Shorting?
Yes. Most brokers offer leverage when shorting via CFDs or spread betting. This amplifies both potential gains and losses. Margin requirements vary by asset, usually from 5%–25%. Leverage increases risk, so it’s important to use stop-loss orders and only risk what you can afford.
Costs and Fees of Short Selling
Do You Pay to Borrow Shares?
In CFD or spread betting accounts, you don’t directly pay to borrow shares like traditional shorting. Instead, brokers build this cost into overnight financing charges and spreads. There’s no separate “borrow fee” in most retail platforms unless specified in institutional accounts.
What Are Overnight or Holding Fees?
Overnight fees apply when short positions remain open past market close. These are calculated as a small percentage of the trade’s notional value and charged daily. Costs vary by asset and broker, and can add up quickly — especially if the position is held for several days.
Are There Commission or Spread Costs?
Most UK brokers charge no commission on CFDs or spread bets, but profits are made via the spread — the difference between buy and sell prices. Wider spreads increase costs, especially in low-liquidity stocks. Always check real-time spreads before placing a trade.
Do You Pay Tax on Short-Selling Profits?
Yes, short-selling profits via CFDs are subject to Capital Gains Tax (CGT) in the UK. Spread betting, however, is currently tax-free for UK residents. Both methods are not eligible for ISA or SIPP accounts. Always consult a tax adviser for personalised advice.
Is Short Selling Legal in the UK?
Is Shorting a Stock Illegal?
No. Short selling is legal in the UK when done through regulated instruments like CFDs or spread betting. It must be conducted via FCA-authorised brokers. While some restrictions apply to naked short selling and specific stocks, standard shorting is fully permitted for retail traders.
What Rules or Restrictions Should UK Traders Know?
UK traders must comply with margin requirements, risk warnings, and disclosure rules set by the FCA. Brokers may restrict shorting on certain small-cap or illiquid stocks. During high volatility, regulators may also impose temporary bans on short selling specific sectors or equities.
Can I Short Stocks in an ISA or SIPP?
No. You cannot short stocks within ISAs or SIPPs. These tax-wrapped accounts only allow long positions in approved assets. Short selling involves derivatives and leverage, which are excluded under current UK ISA and pension regulations. Use standalone CFD or spread betting accounts instead.
Risks of Shorting Stocks
Can You Lose More Than You Invest?
Yes. Because losses on a short position are theoretically unlimited if the stock rises sharply, you can lose more than your initial margin. This risk makes stop-loss orders essential. Retail brokers may close trades automatically if your account falls below margin requirements.
What If the Stock Rallies or Goes Parabolic?
If the stock surges, your short position quickly accumulates losses. This can trigger margin calls, forcing you to deposit more funds or close the trade. Parabolic moves caused by news, earnings, or short squeezes can lead to sudden, severe losses if unmanaged.
How Can You Reduce Risk When Short Selling?
Use stop-loss orders to limit downside. Only short stocks with sufficient liquidity and avoid those prone to extreme volatility. Never risk more than you can afford to lose. Start with small position sizes and consider practising on demo accounts before committing real capital.
Strategies and Indicators for Short Selling
What’s the Best Time to Short a Stock?
Ideal times include when a stock breaks major support levels, posts weak earnings, or shows negative news flow. Shorting in a bear market or during sector downturns improves success rates. Technical confirmation of trend reversal can also improve trade timing.
Should You Short in a Bear Market Only?
Shorting is often more effective during bear markets or broad downturns. However, it can also work in bull markets on overvalued or weakening individual stocks. Risk is higher in bullish markets, so proper timing and tight stop-losses are more important.
What Technical Indicators Help Spot Short Setups?
Popular short-selling indicators include RSI (overbought conditions), MACD crossovers, moving average breakdowns, and bearish chart patterns like head-and-shoulders. Volume confirmation and price rejection at resistance levels also help identify potential entries. Combining multiple signals increases confidence in timing.
Should You Use Stop-Losses or Price Alerts?
Yes. Stop-losses are essential in shorting to cap potential losses from upward spikes. Set alerts for resistance zones, earnings reports, or news that could trigger reversals. Trailing stops can protect profits as the stock falls while reducing exposure to late-stage rallies.
Is Short-Selling Right for You?
If you’re considering short-selling, start small, use risk management tools like stop-loss orders, and practice on a demo account before putting real money on the line. Always stay informed about market conditions, and remember that short-selling requires constant attention and discipline. With careful planning and execution, short-selling can be a valuable addition to your trading toolkit.
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FAQs
What is short-selling and how does it work?
Short-selling involves borrowing shares, selling them at the current price, and buying them back at a lower price to profit from the price drop.
What are the risks of short-selling?
Short-selling carries the risk of unlimited losses if the stock price rises, as there’s no cap on how high a stock can go.
Is Short Selling Good for Beginners?
Short selling carries high risk and is not ideal for complete beginners. However, with education, demo trading, and proper risk controls, intermediate traders can begin using short strategies responsibly. Always start small and never risk funds you cannot afford to lose.
What is a short squeeze?
A short squeeze occurs when a heavily shorted stock’s price rises quickly, forcing short-sellers to buy back shares at higher prices, driving the price up further.
How can I protect myself when short-selling?
Use stop-loss orders and closely monitor your trades to limit potential losses in case the stock price rises unexpectedly.
References
- The Balance – “How to Short a Stock”
This article breaks down different methods of short-selling and explains when to use them. - NerdWallet – “Short Selling Explained”
A beginner-friendly guide to short-selling, including tips on managing risks. - SEC.gov – “Investor Bulletin: An Introduction to Short Sales”
A government-published guide to short sales, explaining both the process and regulations involved.
