I started dabbling in day and swing trading a few months ago, and until now I've only purchased for the long. I'd like to also start shorting stocks when the opportunity is right. First, is there any particular broker/platform that's considered the best for shorting? I noticed Interactive Brokers seems to have the lowest margin rates, and I assume that's a primary aspect to consider when shorting? Second, when I want to sell short and my broker tells me there are 0 shares of that stock available, is that dependant on the broker? I'm currently using Fidelity, and they never seem to have any shares available of stocks I'd be interesed in shorting. Do some brokers stockpile more shares to loan out than others, or am I misunderstanding how it works?
Availability of shares is very broker dependent. That's another reason you could try IB which is usually regarded as having among the best availability, but as I don't know about the alternatives, don't consider this an unbiased recommendation. Just the compulsory warning (bet you heard it already): Be sure to take care in your strategy about the fact you have unlimited risk to the upside when you're short stocks. While large cap companies rarely double in value between gaps, micro cap can easily bankrupt you if you place too large bets.
BaconFat, #1-Lightspeed has a large number of clients that short-both for day trading and overnight. https://www.lightspeed.com/trading-platforms/lightspeed-trader/platform-features/ #2- When you want to sell a stock you do not own, there is a rule called Reg-Sho your broker needs to follow. What it basically means to you is that every broker has an Easy To Borrow list (ETB). If a stock is not ETB, your broker needs to provide you a "locate" or you can't enter the short order. Then there are stocks called Threshold stocks where you can't get a locate because that clearing firm has been failing to borrow stock to satisfy other short clients and those positions are subject to a buy-in so the clearing firm does not fail on delivery to the buyer under Reg-Sho rules. At Lightspeed our clients clear and custody at Wedbush Securities. We get our locates from Wedbush. Those locate do not have a cost. For symbols Wedbush does not have enough inventory to provide a locate, we also offer third-party locates that do have a cost. You request the free locate first, if you get no shares, you can request the premium locate and accept or reject the cost. We make it very clear on our software if the stock is ETB (E), requires a locate (L) or is Threshold (T) in our Level 2 window a watch list. You should also know that getting a locate does not guarantee your clearing broker can borrow those shares if held overnight. If you short and cover before the end of the day, there are no costs associated with the shorting of shares (Unless with us you use the locate tool).
Thank you Robert, I will definitely take a look at Lightspeed. What is the margin rate, and what extended hours are covered with that platform?
We offer Margin (2X for DT and Overnight), Day Trading Margin (4X for DT and 2X overnight) and PMA (6.67X for DT and 5.56X overnight if <$5mm but starting with $175K) Lightspeed Trader can route from 4 am to 8 pm ET.
In addition to the excellent replies you've already received I will add a couple nuances: Another risk to shorting is delisting (due to bankruptcy, buyouts, etc). This is less talked about & less likely to happen probability-wise, but if it happens to you and you are holding an excessive position size - it can bankrupt your balance. This is b/c you may have to pay interest for months to years on the delisted stock with little to no recourse. As an example, CMTA (Clementia Pharmaceuticals) was bought out by a private equity firm & de-listed on 4/17/19. Attached to that buyout offer was contingent value rights. So once the stock officially de-listed, you'd still be holding the CVR attached to the now de-listed stock. That CVR holds charges a 0.25% daily compounded interest rate for 5 YEARS (until 12/31/19). Imagine if you had a $10,000 position size (still small by many who trade here) and were forced to pay any legally asked interest rate on that position compounded daily for 5 years? The mechanism by which you obtain the short is as important as the broker's ability to find shares. Some brokers require you to call to initiate a short position, and others offer this electronically but some electronic shorting systems are more efficient than others. I personally feel a sustainable trader should at least know how to short and about shorting to have a comprehensive skill set. Good luck!
Do you charge short interest on both ETB and hard to borrow stocks? Is your premium locate cost an ongoing interest rate or one-time expense paid at time of borrow?
1. Yes. We charge for all overnight shorts, even ETBs. 2. One time expense, per share, and can be recycled throughout the trading day. Here is a current example of the premium locate cost. I have no idea if you request a locate on 1000 ABIO if you would have gotten a locate today. Let's say you do not get the free one and use the locate tool. The cost today is $55.00 for 1000 shares and you can sell/buy 1000 shares over and over for the same $55.00.