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How to Short a Stock with Your Online Brokerage Account

Short Selling, in essence, means you’re betting on a specific stock to decrease in value over a specific period of time. You’re basically borrowing shares from your broker at a certain price point and, if successful, buying them back at a lower price. This is the opposite of “going long” on a stock when you anticipate the value to increase over time. 

If done right, short selling can be an incredibly valuable tool for investors and it’s not as complicated or risky as folks believe. 

For example, let’s say you anticipate your shares of XYZ stock to decrease in price in the future. Shares of XYZ are currently trading at $50/share. You issue a short sale order through your brokerage account to sell 100 shares of XYZ. Your broker then deposits $5,000 into your account. If you close your position at $30/share you’d have $2000 remaining in your account, or a 40% gain, after all is said and done. 

Curious about shorting stocks? Here’s a brief tutorial to get started. We’re big fans of TD Ameritrade but similar steps will be required if you’re using other online brokerage platforms like Robinhood.

Enable Your Account for Margin Trading

Simply having a TD Ameritrade account won’t allow you the ability to short sell immediately. However, you can log in to your account and make the request to enable your account for margin with TD Ameritrade client services. 

To enable this feature, click on the tab Client Services -> My Profile -> General. On the right side of the page, you will see Margin Trading. Click the green “edit” link to the right. Fill out the form and send it back to TD. It will typically take 2 to 3 business days to hear back if the account was approved or not. They may ask additional questions to ensure your account qualifies for margin trading.

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Enter Your Order 

As soon as you’ve been approved, you can enter an order to short sell a stock. This works the same on virtually any other platform and you must specify that you’re planning to short the stock you’re placing the order for. Remember you MUST have a minimum of $2,000 available in your account. This covers the broker in the event that your short sale swings the wrong way and you have to cover the loss. TD may not allow shorting of OTC stocks (penny stocks).

Remember, timing is everything

While true when going long on a stock, it’s particularly important when shorting stocks. You can risk forgoing potential profits or racking up considerable losses. All stock market investing is inherently risky. You should be totally certain about your position before you issue your order. Mitigate your losses by paying attention to the price after you’ve issued the order – even if you’re confident in how the price will move.

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How to Short a Stock with Your Online Brokerage Account

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How to Short a Stock with Your Online Brokerage Account