How To Short Sell Stocks
There are plenty of ideas on how to short sell stocks. To short sell a stock is to engage in a transaction in which you sell shares in an equity prior to buying them with the anticipation that the price will drop. Your stock broker lends you the shares to sell, from a pool of client shares. When you cover your short, you buy back and return the borrowed shares. Getting started short selling is not as difficult as making money at the task. All stock brokers will be happy to take your collateral into their oversight. That is the business they are in.
To short sell stocks, you will need:
- Brokerage account
- Margin agreement with your broker
Collateral in your account
- Open a brokerage account. A stock broker is the proper intermediary between you and your ability to short sell stocks. If you plan to short sell, it is best to select a broker who offers generous margin terms and who does not charge you for the shares you borrow to sell.
- Execute a margin agreement. A stock broker will happily lend you stock to sell short. The broker uses collateral in your account to secure this loan. A margin agreement simply outlines the terms of borrowing on margin from your broker.
- Sell shares of a stock. If you sell shares in an equity prior to purchasing, you have sold the stock short.
- Your broker will issue a margin call when collateral in your account no longer covers the loan. These are serious business.
- Set loss limits prior to every short sale, and buy back shares once shares hit your stop loss point. Discipline is a valuable trait when you short sell stocks.
- Every short seller must find a trading style that works with his demeanor and risk tolerance. There is no one single method that works for everyone.