Selling short

Discussion in 'Trading' started by mlbeers, Jul 21, 2005.

  1. mlbeers


    ok i am new to the market im actually still paper trading but im wondering how selling short works. I know you borrow stocks from your broker then buy it back at lower price but whats the chances your broker will have the stocks you want and if he does how many shares do you think i could get? And will your broker give you the shares even if the stock is going down?
  2. LOL

    It works by NOT doing it in the US markets.
  3. Broker/Dealers loan securities from either their own accounts, customer accounts who are on margin, or by borrowing them from another B/D on the street through a written agreement. There are a lot of securities that can be sold short without having to check for availability. These are based on an "easy to borrow" list on the street. For others stocks, they may have to check. An easy place to start, though, is to see if the stock is marginable. If not, you're not shorting the stock. Each B/D is different though.

    For most securities, stocks must be selling on an uptick (last trade higher than the previous) in order to be due an execution. Issues such as QQQQ, DIA, SPY do not.

    There is a new regulation out from the NYSE that is relieving some of these old rules. Check this out for more info:
  4. alanm


    From a practical standpoint, with most brokers, you simply attempt to sell the stock, and the order is either accepted or rejected. Many brokers will automatically determine that it is a short-sale, since you don't own the shares. Others, you may have to specifically designate the order to "Sell Short" instead of "Sell".

    For the overwhelming majority of stocks and brokers, you will be able to short at least 50K shares. This changes, of course, for stocks that are "in play" and are being heavily shorted. A lot of those become "hard to borrow". Some brokers will simply not allow them to be shorted. Others, you may be able to call their "stock loan" department and pay a per-share rate per day to borrow them.

    In unusual circumstances, there is some risk of a forced "buy-in". This means you can be short a stock that you are no longer allowed to be short, and the broker will force you to buy back the stock. This usually happens with a day or two's notice, though I've heard of it happening intra-day, too. It usually is accompanied by a rally in the stock's price as everyone is forced to cover their shorts :)