What Is Short Selling?
Short selling is a trading strategy used by day traders that speculates on the decline of a security. It involves locating or borrowing shares of a security or stock so as to sell them with the intention of purchasing them back for profit at a later time. The purchasing back of the shares is referred to as covering and once the located or borrowed shares have been fully covered, the day trader has then exited the position.
Questions To Ask When Selecting A Short Selling Broker
Does The Short Selling Broker Allow A Max Daily Stop Loss?
Short selling is inherently risky. Rewards can be substantial, however, losses can be even more substantial as in theory the stock can keep going higher to infinity. Max gains from a short selling position can’t go higher than 100% whereas a loss can run to several 100% or even several 1000%. It is therefore imperative to have a proper strategy when short selling and to have procedures in place with your short selling broker such as a max daily stop loss. A max daily stop loss will be a specific dollar amount that, once reached, should liquidate/exit the position.
Does The Sort Selling Broker Offer Competitive Locate Prices?
Some stocks are hard to borrow (HTB). Such stocks require approval from a short selling broker to be located and then borrowed by day traders to initiate a short selling transaction. This locating of shares involves fees and the fee will fluctuate depending on how HTB the stock is. This fee will also vary from broker to broker. It is best to find a short selling broker that consistently has HTB stocks available at competitive prices. Below is an example of the short locates window on the TradeZero software ZeroPro. On this particular day, it only cost me 78 cents to locate 100 shares of $AMC.
(ZeroPro Short Locates 09/14/2022)
Does the Short Selling Broker Have Sophisticated Stock Software?
As mentioned above, short selling is risky. It is necessary to have a proper short selling strategy and a clear process for selecting stocks to short. The quality of the stock software offered by the short selling broker will have a major bearing on the quality of research that goes into a trade. Technical and fundamental analysis tools will need to be part of the stock software in addition to efficient and reliable order execution.
Below is an example of technical analysis on ZeroPro charts, with multiple indicators available to use including VWAP (click here for another article by yours truly on a VWAP strategy), EMA’s, volume, trendlines and automated highlighting of key levels such as HOD (High Of Day) & LOD (Low Of Day).
(ZeroPro Charts 26/09/2022)
Why I have Personally Found TradeZero To Be The Best Short Selling Broker
- I have personally found TradeZero locates to be the cheapest.
- I have found that TradeZero always has shares to locate or borrow for any stock I have personally wanted to short.
- I consider ZeroPro the best stock software I have used
- Arranging a daily max stop loss with TradeZero was easy and efficient.
- TradeZero offers 24/7 customer service that has always immediately answered any queries I had.
- TradeZero offers zero commission trading. It is worth noting that zero commission trading still does include some
transactional costs but overall trading costs may be reduced significantly when a trader does not have to pay commission.
The 2022 bear market has seen many day traders switch to short selling. Short selling involves borrowing shares of a security or stock so as to sell them with the intention of purchasing them back for profit at a later time. Choosing the best short selling broker is an integral part of making short selling worthwhile for day traders. TradeZero is an award winning short selling broker considered by Benzinga to be the best short selling broker in both 2020 and 2021.
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 provides self-directed brokerage accounts to customers through its operating affiliates: TradeZero America, Inc., a registered broker-dealer and a member of FINRA and SIPC; TradeZero Inc., a dealer registered with the Securities Commission of the Bahamas; and TradeZero Canada Securities ULC, an IIROC member firm and member of CIPF.
Benzinga - Blog - Eliminating “Buy And Hold” Myths by Finanfix, Benzinga contributor (July 18, 2022)
TradeZero - Homepage (September 28th, 2022)
TradeZero – ZeroPro (September 28, 2022)
TradeZero - Blog - A Simple VWAP Strategy By John Maher (September 16, 2022)
The Globe And Mail - TradeZero Named Best Broker For Short Selling For 2nd Straight Year At Benzinga Global Fintech Awards (November 18, 2021)