Short Selling Order Execution

Discussion in 'Order Execution' started by chuzek, Aug 30, 2010.

  1. chuzek


    I'm new to short selling stocks and wanted to know some of the technical order execution concerns people have faced. I understand the fundamental concerns of short selling (i.e., unlimited losses, etc).

    Some questions I have are:
    - Have you had issues with a brokerage having enough shares to borrow?
    - What quantity of shares do you have to be ordering for availability to become an issue?
    - Are you able to borrow the shares at the stated bid price?
    - Is order execution time significantly longer when shorting a stock compared to selling a long position?
    - Do you find some brokerages significantly better than others?
    - I'm developing an algorithmic trading script that short sells. When comparing back testing and paper trading results to actual execution, what additional discrepancies beyond what one finds with long positions should I expect?

    Thanks in advance!
  2. dloyer


    I think if you trade this live, you will find that your actual execution will differ from backtest.

    The problem is that some of your trades will be rejected because the shares are hard to borrow and many of these will turn out to be winning trades.

    On the other hand, loosing trades are easy to borrow.

    Historical easy to borrow lists, needed for accurate backtests, are difficult to obtain and depend on your broker.
  3. 1) Yes, we all run across hard-to-borrow shares, usually when the stock has an abnormally high short float. Many of the financial in 2008 were hard to borrow, for example. (Hard to borrow means no borrow).

    2) Usually well above what any daytrader would use, though sometimes I've seen firms limit people to 1 or 2k shares for a hard-to-borrow issue

    3) Order execution time is the same on both sides

    4) Some brokerages have significantly better short lists, and thus you're less likely to have a problem borrowing a stock you want. To compare, most brokers will list their short-lists on their website, or at least e-mail you one if you ask. You can compare. I think brokers who clear through Penson have better short lists in general but this may not be true, please don't flame me I don't really know.

    5) Aside from slippage, remember you can't short on a downtick a stock down more than 10%, and obviously you won't be able to borrow all stocks.