When stock prices fall sharply, most people assume it means bad news for everyone. But that’s not always the case. Market downturns and periods of high volatility can actually create real opportunities for traders who know how to position themselves on the right side of the move. This article looks at the best ways for UK traders to profit when share prices fall.
What Causes Share Prices to Fall
Share prices generally drop when investors lose confidence. This can happen for many reasons, but it usually comes down to fear and uncertainty about the future. When investors believe that companies will earn less money going forward, they start selling their shares, and prices drop as a result.
Sometimes the trigger is a single event that catches the market off guard. A good recent example is what happened in April 2025 when US President Donald Trump announced sweeping tariffs on imports from countries around the world on what he called “Liberation Day.” The announcement triggered widespread panic selling across global stock markets, and it became the largest global market decline since the 2020 stock market crash. The FTSE 250 fell 4.4% to a 16-month low, and on April 7, the FTSE 100 fell by more than 6% before recovering slightly to close down 4.25% on the day. Traders who saw this coming and positioned themselves on the short side of the market had the chance to make significant profits in a very short space of time.
This is just one example, but there are several common situations that tend to cause share prices to fall. These include:
5 Ways UK Traders Can Profit From Falling Share Prices
All of the methods listed below are legal and available through FCA-regulated brokers in the UK. Each one works differently and suits different types of traders
1. Spread Betting
Spread betting is a type of derivative trading that is especially popular in the UK and Ireland. It allows traders to speculate on the price movement of a financial instrument without actually owning the underlying asset. Instead of buying or selling real shares, traders place a bet on the direction they think the price will move.
To profit from falling share prices, a trader would open a “sell” position. They choose how much they want to stake per point of price movement. If the price falls as expected, the trader earns a profit for every point it drops. One of the biggest advantages of spread betting is that profits are typically tax free in the UK and Ireland. There is no capital gains tax or stamp duty to pay. Spread betting also comes with zero commission charges on trades, which means the only cost to the trader is the spread itself.
Example: Let’s say shares in Company X are trading at 500p and a trader believes the price will fall. They open a sell position at £10 per point. If the price drops to 450p, that is a 50 point move in the trader’s favour. The profit would be 50 x £10 = £500. However, if the price rises to 530p instead, the trader would lose 30 x £10 = £300.
2. CFD Trading (Contracts for Difference)
CFD trading is also a form of derivative trading, and on the surface, it looks similar to spread betting. However, with CFDs, traders buy and sell contracts rather than placing a stake per point. The profit or loss is based on the difference between the opening price and the closing price of the trade. Unlike spread betting, CFD profits in the UK are subject to capital gains tax, and brokers typically charge a commission on each trade.
Example: A trader believes shares in Company Y, currently priced at £10, will fall. They sell 500 CFDs at £10 each. If the price drops to £8, the trader buys back the CFDs and pockets the difference. The profit would be (£10 – £8) x 500 = £1,000. If the price rises to £12, the loss would be (£12 – £10) x 500 = £1,000.
3. Short Selling
This method involves borrowing shares from a broker, selling them at the current market price, and then buying them back later at a lower price to return them. The difference between the selling price and the buying price is the trader’s profit.
Example: A trader borrows 1,000 shares of Company Z at 400p each and sells them immediately for £4,000. The share price then drops to 300p. The trader buys back 1,000 shares for £3,000 and returns them to the broker. The profit is £4,000 – £3,000 = £1,000, minus any borrowing fees. If the price had risen to 500p instead, the trader would have needed £5,000 to buy back the shares, resulting in a £1,000 loss.
4. Put Options
A put option gives the holder the right, but not the obligation, to sell a specific stock at a set price (known as the strike price) within a certain time frame. If the share price falls below the strike price, the value of the put option increases and the trader can sell it for a profit.
The advantage is that the maximum loss is limited to the premium paid for the option. The downside is that if the share price does not fall before the option expires, the trader loses the entire premium.
5. Inverse ETFs
Inverse ETFs are exchange traded funds designed to move in the opposite direction of the index they track. If the index falls, the inverse ETF rises in value, and vice versa. This makes them a simple way for traders and investors to profit from a declining market without needing to use leverage or derivatives directly.
Several inverse ETFs are available on the London Stock Exchange for UK traders. Examples include the Xtrackers S&P 500 Inverse Daily Swap UCITS ETF (XSPS), the Xtrackers FTSE 100 Short Daily UCITS ETF (XUKS), the WisdomTree FTSE 100 1x Short (SUK1)and the L&G FTSE 100 Super Short Strategy (Daily 2x) UCITS ETF (SUK2).
Turn Market Downturns Into Opportunities
Downturns are a normal part of the market cycle, and knowing how to trade them is a valuable skill. UK traders have several proven tools at their disposal to profit when share prices drop. These same tools can also double as a hedge, helping to protect long term investments during periods of market weakness.
