Short selling is the opposite of this in that the aim is basically to open a short position higher on the chart and cover or exit lower down for profit.
Short selling feels less common than going long and the risks are greater as there is no cap as to how high a stock can go. Nonetheless, short selling is a viable and potentially profitable way to trade for many day traders.
In order to short sell certain stocks a trader must first either locate or borrow shares from their broker dealer to short them. Short selling broker/dealers such as TradeZero America specialize in maintaining access to inventory of shares to locate or borrow.
Not all short selling brokers/dealers will have shares to locate or borrow for all stocks and if they do the locate or borrow fees might be very high. This is why due diligence is necessary before opening an account with a broker/dealer, as day traders who wish to short stocks need to make sure they sign up with a renowned short selling broker/dealer.
TradeZero Is An Award Winning Short Selling Broker/Dealer
I personally advise all US based day traders to sign up to TradeZero America for both long and short selling. TradeZero was named the best broker/dealer for short selling for the 2nd straight year at the 2021 Benzinga Global Fintech Awards. Check out this article by Bloomberg regarding the award winning short selling broker/dealer, including the direct quote below :
“TradeZero’s short locates platform enables customers to quickly source both easy and hard to borrow stocks in order to rapidly implement bi-directional trading strategies. TradeZero also provides the unique ability to sell back locates once customers are done with them or get credit for unused locates. Most customers do not hold positions overnight, mitigating the need to actually borrow short shares.”
The point about selling back locates once finished with them in addition to the option of getting credit for unused locates, is unique to TradeZero and something that can save US day traders quite a bit of money over the course of time.
Steps To Follow When Shorting A Stock On ZeroPro
Short selling requires a margin account, which means the day trader can use the equity in their account as collateral for a loan from the short selling broker/dealer. This borrowed money can then be used to trade stocks. Because of this margin requirement and the need to locate shares, the steps to short selling are slightly more complicated than going long. Below I go through the exact steps a day trader based in the US needs to go through in order to short a stock with short selling broker/dealer TradeZero.
- Apply for a margin account when signing up. If you have any problems the 24/7 live chat service will happily guide you through the process.
- Decide which stock you want to short.
- Open up ZeroPro trading software and at the top of the screen select the short locates icon from the menu bar. See below:
(ZeroPro : Menu Bar : October 2022)
- Once the short locates window is open, type in the name of the stock you wish to borrow shares for. See below:
(ZeroPro : Short Locates : October 2022)
- Shares can be borrowed in lots of 100.
- If you are happy with the price of the locates then click accept and proceed to borrow the shares.
- Open up the simple order entry window on ZeroPro and type in the name of the stock you wish to short and then type in the number of shares to short.
- When ready to enter the short position, click “short” in the order entry box and when ready to exit click “cover”. See below:
(ZeroPro : Simple Order Entry : October 2022)
- Once the position is covered, go back to the inventory tab in the short locates window and the shares you borrowed will be available for credit. Click credit to return the shares. Please note there is no guarantee you’ll get a credit for those shares traded or how much you’ll be credited. It depends on the demand for that borrow.
Note: Traders who wish to trade with a TradeZero America account are subject to the U.S. Pattern day trading rules and must maintain $25,000 in their accounts. For further details click here and scroll down to “What is the Pattern Day Trader Rule?”
Day traders in the US seem more likely to go long on stocks rather than going short. Nonetheless, short selling is a viable strategy for many day traders. Short selling brokers/dealers will typically vary in both their availability and pricing of shares to borrow. TradeZero America is a specialized and award winning short selling broker/dealer that offers a good package for short selling. I have personally found them to be the best option available. The process to borrow shares and short a stock is easy to follow and efficient on the TradeZero platform ZeroPro.
This content (“Content”) is produced by John Maher. The Content represents only the views and opinions of Mr. Maher. Mr. Maher’s trading experiences and accomplishments are unique, and your trading results may vary substantially. TradeZero does not endorse the Content and makes no representations or warranties with respect to the accuracy of the Content or information available through any linked third party sites. The Content has been made available for informational and educational purposes only and should not be considered trading or investment advice or a recommendation as to any security. Trading securities can involve high risk and potential loss of funds. Mr. Maher is compensated by TradeZero for producing the Content and may also receive compensation for customers he introduces to TradeZero.
TradeZero America, Inc. (“TZA”), a subsidiary of TradeZero Holding Corp., is a United States broker dealer, registered with the SEC and member of FINRA and SIPC, that offers self-directed electronic securities trading to its customers. TZA does not provide financial or trading advice and does not make investment recommendations to its customers. This communication does not constitute an offer to sell or a solicitation to buy any security or instrument which it may reference. There is a risk of loss in online trading of securities including equities and options. Trading on margin is for experienced investors only as the amount you may lose can be greater than your initial investment. Likewise, short selling as a securities trading strategy is extremely risky and can lead to potentially unlimited losses. If you have any specific questions, please reach out to TZA directly at firstname.lastname@example.org.
TradeZero - Homepage (October 20th, 2022)
Bloomberg - TradeZero Named Best Broker For Short Selling For 2nd Straight Year At Benzinga Global Fintech Awards (November 18th, 2021)
TradeZero – ZeroPro (October 20th, 2022)
TradeZero USA - FAQ’s