Investing > Best Brokers for Short Selling

Best Brokers for Short Selling

If you're looking to short sell, this guide will explain who the best brokers are and why.

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Looking to place short bets? Given the high level of volatility engulfing the markets, I don’t blame you.

Shorts, like any financial trade, come with a large amount of risk… so you’d better have a good idea of how to trade them. Or better yet, work with a reliable broker for short selling who can help guide you.

But where do you start? Brokers tend to vary quite a lot when it comes to their tools, services, fees and customer service… All of which can affect not only your returns but also your level of happiness and mental well being while trading.

Most importantly, you’ll want a broker that has low fees and easily borrowed stocks.

In this guide, we looked at the top 33 most popular U.S. brokers for short selling, keeping the above criteria in mind. We’ll share the results below: the five companies which scored highest overall.

At the end, we’ll share a bit more about how short selling can be profitable, how to strategize to get the best results, and mention a few potential risks you’ll want to avoid.

Ready to get started? Awesome. Let’s dive in.

Top Online Platforms for Short Selling Stocks

Our top five brokers for traders looking to short sell:

1. Interactive brokers
Overall Best Platform for Short Selling Stocks
2. TD Ameritrade
Best Beginner-Friendly Platform
3. Firstrade
Best Budget Platform for Trading
4. Charles Schwab
Superior Market Research Tools
5. TradeStation
Best Tools for Rookie Traders

Best Brokers for Short Selling Stocks

We’re going to begin by highlighting the brokers that we believe are most likely to help you succeed on your trading journey. Then we’re going to go into more detail about our top pick, and how it can help you give you an advantage when short selling.

1. Interactive Brokers: Best Overall

IBKR logo on white background
Interactive Brokers’ platform provides the best features for traders who want to short sell stocks.

Interactive Brokers is our top pick for traders looking to short sell. IBKR clients will benefit from the lowest margin rates in the industry, as well as low commissions on stock, forex, futures, options and bonds. High-net-worth clients will increase profit from low margin interest rates of 50 bps on accounts.

Pros

  • Transparent pricing
  • Impressive tools for short selling
  • Wide variety of shareable stocks

Cons

  • Inactivity fees with IBKR Pro (but not IBKR Lite)
  • Website navigation can be difficult

Something that might peak your interest, Interactive Brokers pays interest for idle stock balances. This means, traders can earn some passive income by lending fully paid shares to Interactive Brokers for short selling.

On top of this, IBKR provides a SmartRouting execution system that searches the market to bring you the lowest prices for assets including stocks and options.

You’ll pay competitive fees for IBKR’s services, tools and platforms, including paying just $2.34 per trade for an equity transaction. The firm’s low commission rate of $0.69 makes it ideal for scalping and day traders, and there is no base cost and commissions are $0.69 per option contract.

Interactive Brokers is most suited to more seasoned traders, though inexperienced traders can benefit from IBKR’s Expert Community which offers access to Market Pulse, Trader’s Insight and its own Quant Blog. Not to mention its extensive educational content including, Trader’s Academy, webinars and short videos on trading.

As Interactive Broker’s is our Top Pick for the Best Brokers for Short Selling, we’re going to take a more in depth look at how it can help you reach your goals in just a bit. First, let’s run through the other brokers that made our list.

Visit Interactive Brokers on Interactive Brokers’ website

2. TD Ameritrade: Easy to Use Platforms

TD Ameritrade Logo
TD Ameritrade’s beginner-friendly platform is a great starting point for novice traders who want to short sell stocks.

TD Ameritrade is an ideal broker to turn short-sellers into successful traders. This firm will provide access to a huge investor and trader community, in addition to offering advanced technology suitable no matter what level you’re at.

Pros

  • User-friendly online platform suitable both for experienced and inexperienced users
  • Advanced research tools
  • No fees for advanced trading tools
  • No fees for trading stocks and ETFs
  • Superior access to options and futures market benefits traders who plan on hedging

Cons

  • Users can trade only on the US markets
  • Slow account opening process

TD Ameritrade’s platforms are research to use, with research and charting abilities, real-time quotes, real time news fees, and order entry. On top of stocks, TD Ameritrade will give you access to a number of other investment streams including, forex, options, stocks, over 300 commission free ETFs and non-proprietary mutual funds.

Margin accounts with TD Ameritrade, will require you to have a minimum deposit of $2,000 in either cash, stocks or other security. You could receive a leverage of up to 2:1, in addition to a flat rate of $6.95 for all stock trades.

So, how much will this all cost? Not too much – TD Ameritrade charges $0 for its advanced trading tools. Stocks and ETFs come with $0 commissions.

Options will cost 65 cent per side, per contract. Futures will cost a little more at $2.25. The firm currently charges 9.5% interest on a margin account. Those looking to short sell by hedging them with options or futures can take advantage of the access TD Ameritrade provides to these markets. For more info on how you can start short selling stocks with TD Ameritrade, take a look at our TD Ameritrade review.

Visit TD Ameritrade on TD Ameritrade’s website

3. Firstrade: Low Fees

Firstrade logo on white background
Firstrade offers low fees for selling stocks and an intuitive trading platform

Firstrade is another strong choice for traders in such a huge market of brokerages; it’s a robo-advisor which means: Low Fees first and foremost. More accurately, Firstrade offers free trades on almost all of its offerings.

Pros

  • Easy-to-use online platform
  • Users can mostly trade for free
  • Intuitive platform design allows for easy tracking of portfolio’s performance
  • Good research tools

Cons

  • No 24/7 availability
  • Trading is possible only on the US markets

You will also be able to keep an eye on your portfolio’s performance through Firstrade’s mobile app, where you can utilize Firstrade’s fundamental data and equity ratings, comprehensive dashboard, advanced charts, and quality research and trading interface.

Firstrade’s navigator allows traders to place orders, manage their accounts, do research and get market updates. Its single screen enables traders to intuitively use the dashboard. Please note though, most of the options on the Navigator are aimed at active traders. In case you want to check some more details on Firstrade’s platform and account opening, we have you covered in this review.

Visit Firstrade on Firstrade’s website

4. Charles Schwab: Best for Market Research

Charles Schwab Logo
For all traders who want superb research tools, Charles Schwab’s platform is the best choice.

Charles Schwab will offer the platform and tools you need to sell stock short. Just make sure you check whether Schwab offers the stock or another broker. Stocks from other brokers will come with additional fees.

Pros

  • Well-designed and customizable trading platform
  • Low fees for stock and ETF trading
  • Advanced research tools

Cons

  • Expensive deposit for a margin account

Schwab offers a quality, downloadable and customizable trading platform, in addition to a web-based platform and an app. Traders can utilize the extensive online market research and educational content offered by Schwab to help you grasp not just the basics but also more complex trading strategies.

Gain access to stocks, options, bond and mutual fund markets, not to mention ETFs, among others. These are all big Charles Schwab platform’s advantages if you’re planning on combining futures or options with your shorts.

Stock trades will cost you $4.95. A minimum deposit of $5,000 will be required for a margin account in addition to paying a minimum of 50% of the stocks value in order to sell short.

Visit Charles Schwab on Charles Schwab’s website

5. TradeStation: Professional Tools for Novice Traders

Tradestation Logo
TradeStation offers advanced, beginner-friendly tools and commission-free stock trading.

Pros

  • No fees for commission on stocks and a great majority of ETFs
  • Excellent education resources
  • Well-designed online platform

Cons

  • Account opening may be too complicated for novice users

Tradestation has been traditionally known for catering to professional traders with a need for a highly technical platform. However, in recent years it has grown to incorporate novice traders through its TD GO account option.

This offers beginner traders access to professional stock screeners, in addition to informative and comprehensive educational tools to help you stay on top of the latest trends and create effective strategies. In terms of fees, TradeStation charges $0 commission on stocks and almost all ETFs. Both beginner and expert traders can check our TradeStation review for more info on this platform’s advantages.

Visit TradeStation on TradeStation’s website

How To Get a Head-start When Short Selling Stocks

Interactive Brokers Online Trading Platform
Due to its low fees, we believe Interactive Brokers is the top broker for short selling.

Interactive Brokers Group (IBKR) is our top pick for Best Broker for short-selling and offers customers the lowest margin rate in the industry.

IBKR works from the trade date to the settlement date to offer traders automated trading solutions. The firm offers customers transparent rates, a Stock Yield Enhancement Program, a Stock Loan Borrow tool, an availability list, and much more.

Stock Availability Overview

All traders know that come trade date, the priority is availability. International Brokers availability helps customers locate securities that are difficult to borrow, while also protecting them from buy-ins and recalls.

Here are two ways you can see shares that are available for shorting immediately:

  1. You can see how many shares are available for shorting, in addition to interest rates charged on borrowed shares, and the Fed Funds rate at the time. You can find all of this in the firm’s Trader Workstation. Simply add the Shortable Shares, Fee Rate and Rebate Rate columns.
  2. You can also search for availability of shortable stocks in real-time by using IBKRs automated Short Stock Availability Tool that notifies you when a security that you were looking to short becomes available.

Transparent Rates

Image of a Man Looking for the Best Broker for Short Selling
Interactive Brokers is clear and transparent with pricing — a valuable feature.

Interactive Brokers securities financing services offer transparency and efficiency for the stock loan and borrow markets with their automated pricing tools and greater ‘credit-worthiness’.

The firm’s stock loan and borrow prices are competitive, and they use the available market data to measure and stay on top of this.

A variety of high-quality sources are used to develop their prices, and all are visible, along with their security availability in the firms automated securities financing tools.

Interactive brokers also shows the charted daily rate history and intraday time and sales of stock loan fees in their SLB rates window which can’t be underestimated.

Best of all, the broker offers low commissions on stock, options, futures, forex, and a tiered pricing structure.

For example, a balance over 1,000,000 would be charged at the Tier l rate, and the subsequent 900,000 at the Tier ll rate. This will help with decreasing the overall costs involved with short-selling.

IBKR charges a daily interest rate and posts actual interest monthly on the 3rd business day of the following month – put it in your diary!

In addition, IBKR offers margin interest on high net-worth accounts that can be as low as 50 bps above the market-determined, overnight rates.

Other Services

In addition to their key services Interactive Brokers offers account management, asset management and securities funding.

Most importantly for short traders; You can avail of the lowest margin rates in the industry with an equity transaction costing only $2.34 per trade. Options trades have no set base costs, and commissions will cost $.69 per contract.

Although these are great fees, when you’re making lots of trades a day, they can all add up, so be sure to keep track of them.

What is the Price of Borrowing Stock: Stock Loan Borrow Tool

Picture of a laptop running IBKR Borrow app
Interactive Broker’s Borrow Tool helps you facilitate short selling.

To sell stock short, IBKR locates and borrows shares to deliver it to the buyer at settlement.

The cost of borrowing the shares will depend on how much of the shares there are available to borrow, and how in demand they are from other short-sellers that are looking to do the same.

In order to help you estimate how much you will need to pay to borrow a stock before entering your order, you can use IBKR’s handy Stock Loan Borrow (SLB) rates tool.

This tool shows charted daily rate history, along with intraday time & sales of stock loan fees, and a bar graph of historical rates for 10 days prior. It’s an automated tool that’s very efficient and good to have in your arsenal.

The firm will also provide indicative borrow rates when possible. These are the rates that the dealer in the Securities Lending/Borrowing Market are open to transacting.

All transactions will be settled 3 business days after their execution at which time you might find the borrow rates changing, which may be significantly.

Automated Tools

IBKR provides a couple of sophisticated and automated tools for traders in the securities lending services.

The firm’s stock, loan and borrow tools include:

  • Stock Yield Enhancement Program
  • Short Stock Availability
  • Pre-Borrow Program
  • FYI Notifications

The Stock Yield Enhancement Program lets you earn some cash on the fully-paid shares of stocks held in your account.

The Short Stock Availability tool allows you to search for short stocks that are available in real-time, with their electronic, self-service tool.

The firms Pre-Borrow Program will help minimize the chances of being bought-in on settlement dates, and they will even provide notifications to let you know if a stock that you were looking at becomes available.

Short Stock Availability

Image of Short Stock Availability Tool
The Short Stock Availability Tool shows you which stocks are available for shorting.

IBKR’s Short Stock Availability tool is a self-service, electronic one, where you can search for shortable stocks as stats are updated throughout the day to show real-time availability. It’s easily accessible and lets you do the following;

  • See the amount available, the current borrowing rate, and the number of lenders.
  • View historical borrow rates.
  • Search for shortable stock by groups such as, exchange or symbol.

The shortable stocks listed are there to help users only, and it may change. Please note that IBKR state that they do not take any orders for the short-sales of any US stocks that do not meet the requirements for DTC continuous net settlement, and that orders for short sales must first be approved by the firm before going ahead.

Stock Yield Enhancement Program

This program helps traders and investors make some extra cash by lending your “fully-paid” shares of stock in your account for short selling. In short, (excuse the pun) IBKR will pay you if you agree to lending them shares.

The firm’s SmartRouting order execution system sweeps the market to find the best market rates for stocks, options and combinations, and you will be paid interest for each day the stock is out on loan.

Eligibility

The Stock Yield Enhancement Program is free to use by Interactive Brokers customers who have a margin account, or who have a cash account with equity above $50,000 USD.

All stocks must be “fully-paid”, which means that they are not held on margin, or “excess margin” – Stocks that are held on margin but their market value is greater than 140% of your margin debit balance.

Pre-Borrow Program

Interactive Brokers lets you pre-borrow shares to help reduce the chances of being bought-in settlement date. You can join as long as you have a Portfolio Margin account and once you’re in you can pre-borrow stocks if you think you might short-sell later using their Stock Borrow Loan feature.

This can help prevent a buy-in because it ensures that shares are available to short before you put on a short sale. Without this pre-borrow it is hard to know for sure if shares have been procured before the short sale settles.

Check Whether a Stock is Shortable on TWS

Interactive brokers note several public sites that traders can use to check stock loan data, where no login details are needed.

Users will first need to select the country that their stock is listed, at which point a list of available shorted stocks will appear; if there’s too many, they will appear in groups.

You can then use the search box to look for a particular query including, the product description, currency of denomination and the quantity of shares open for borrowing.

Is Interactive Brokers the One for You?

Seasoned traders will benefit most from Interactive Brokers short-selling offerings, but newer traders will enjoy its research section, Traders Academy, webinars and informative videos, too.

You might also love their Traders Insight, Market Pulse and IBKR Quant Blog that you can access in their IBKR Expert Community.

Considerations and Risks

IBKR highlight several considerations and risks to be aware of when using their programs to short-sell which include;

  • Shares loaned possibly not being protected by SIPC, which is why the firm has to provide you with cash collateral in the same amount as the value of your shares in case you don’t get your stock back.
  • Shares loaned are generally used for short-selling.
  •  Loan rates and any interest you receive will change regularly in either direction by as much as 50%, or more.

A Short Guide to Short-Selling: Strategies, Risks, and ABCs

Short-selling poses the potential for unlimited loss and because of that, it should be left to more experienced traders.

If that’s you and you want to learn more about shorting in order to make more informed decisions then read on.

Below we’ve written some quick pointers on how you can make a profit from short-selling, how you can strategize to set yourself up for a greater chance of success, as well as going into some more detail about the potential risks involved.

Why do brokers allow short selling?

Investors can sell a security short intentionally to make a profit from a declining price. This is speculative trading that makes you vulnerable to unlimited risk. This is allowed because of its necessity. In most speculative strategies are the inverse of a defensive one. You cannot have one strategy without the other.

Can anyone short sell?

Short selling, or ‘shorting’ is when an investor borrows shares from a broker and sells them when the shares decline in the hopes they can buy them later for less, give them back to the broker at that price, and profit the difference. This kind of trading is much riskier than others such as buying stocks, and there is potential for unlimited loss. Therefore, short selling is only recommended for more experienced traders.

Why do some say short selling is bad?

Some people say short selling is bad because of its potential for unlimited risk that far exceeds any potential gains, and for this reason, a lot of analysts warn against it.

How much money do you need to short a stock?

FINRA requires that you hold a minimum of 25% of the value of a shorted stock in your account, at all times. For example, if you want to short 100 shares of stock at $30 per share and that increase to $40, you will need a minimum of $1,000 in your account.

What happens if I short a stock and it goes to 0?

If you short a stock and it goes to $0 then you will not be required to repay the lender of the security, which would make you a 100% return. Short sellers hope that this liability will disappear, which will only happen if the stock drops to 0. This is why the most you can make on a short sale is 100%.

How long can you hold a short sell position?

There is no set limit on how long you can hold a short sell position. To short sell you will need a broker that is willing to loan a stock with the understanding that you will sell it on the open market and return it at some stage in the future.

Do you pay interest on short positions?

Yes, interest is paid on short positions. However, this interest is not applied to the amount of cash you make on the sale, but on the price of the underlying shorted since this is what is borrowed.

How is Short-Selling Profitable?

Short sellers believe that when a stock’s price is about to go down, it makes sense to borrow and sell the stock now before it does, and then buy it back later and at a cheaper price.

If this turns out to be true, they’ll earn a profit depending on the difference between their selling and re-buying price.

While some traders are simply speculators, i.e. they enjoy the ‘betting’ side of things. Others do it as a form of hedging, to protect themselves from any risks of huge losses.

Shorting ABC Shares

Short-Selling Cycle
An investor only shorts in the anticipation of a decline in value.

If you believe that the value of ABC shares are overvalued, and for this reason you believe that the stock will crash relatively soon, you can sell the shares at their current price and hope you can buy them back later for less to make a profit.

To do this, you go ahead and sell 20 borrowed shares at $50 each, earning $1,000 in cash.

For simplicity in this example, we will exclude any fees that may need to be paid.

You now have an obligation to re-buy the 20 shares of ABC stock, not at any particular date, but at some stage, and return them to your broker.

If your stock increases to $100 per share, it would cost you $2,000 to buy back the 20 shares. This would result in a loss of $1,000. If however, your shares decrease in value to $10 then you’ll make $800 in profit.

How Short-Selling Affects the Market

Image Symbolizing Global Stock Market
Short selling has a notable influence on the stock market as a hole.

Short selling plays an important role in the liquidity of the stock market. If a stock is believed to be overvalued, a short-seller may sell the stock to bring its value down.

Shortselling also has other market benefits such as creating a higher liquidity, which gives short-term traders, day traders, more opportunities. This can result in better bid/offer spreads that bring down overall costs to more active day traders.

With this, short-selling stocks increases capital and reduces the likelihood of recessions because it brings the asset back to its real value in the market.

3 Simple Strategies for Short-Selling

Traders always have the open to go short in a liquid market with no real restrictions. With that in mind, there are three ways that help short-sellers win:

  1. When a stock is on its way down, at some point it might moderately increase again, if you’re quick and on your toes then this is a good time to sell.
  2. Sometimes, a security might be switching between a consistent high and low. If you can sell during a high then you can be ready to rebuy at the low.
  3. Often, a security might be actively lowering throughout the day. Some traders catch onto this quickly and sell their stock before it hits its lowest point at the end of the day.

Beware of the Risks

Some people may not realize that when you sell a stock short you can’t just buy it back whenever you want at a suitable price because the market might not be there for that stock.

Perhaps no one is selling the stock, or there are a number of people looking to buy it. Maybe some of those people are panic buyers because short sellers are trying to close out there positions before they lose too much money.

You might suddenly hear that a company will be acquired at a 35% premium over the current stock price, and there will be a $15 per share dividend. This will instantly result in a huge loss for short-sellers.

The best investors not only utilize the top platforms for short selling, they also understand the stock market and its volatility — as the market can often go from a serious low to a serious high without any middle-ground.

This volatility may not give you the opportunity to buy during a price low or high because it might instantly change again.

Losses on short-selling are unlimited because there is no limit on how high a stock price can rise. For this reason, short-selling should only be attempted by traders with a lot of experience in, and a good understanding of the market and potential risks.

How to Find the Best Broker for Short Selling

There are a number of top stock brokers on the market, but that doesn’t mean they’re all ideal for short selling. To help you make the best decision when looking for the top broker for short selling, make sure to check if the broker has a wide selection of stock, or access to a stock loaner that can provide stock for you.

How to Get Started Short-Selling

To begin short-selling, you will need a margin account that is prerequisite to entering short-selling orders because you will need to borrow stock with a potential for unlimited loss.

If you currently have a cash account type with Interactive Brokers that doesn’t allow borrowing, and you would like to upgrade your account to a margin account, you can simply go to Interactive Brokers’ client portal, select the settings tab and then the account settings option.

You should see a screen that allows you to request the account change. It will then go under review to be approved by the Compliance Officer before a change is made.

All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on TheTokenist.io. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.

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