Does Ally Invest offer short selling on stocks and ETFs? How to sell short on Ally Invest. Fees and requirements.

How to Sell Stock Short on Ally Invest

Being able to short stocks and ETFs is a great option to have at your disposal as it allows for your portfolio to potentially double the amount of opportunities for profits. Every fundamental investor has been in the scenario where they’ve spent time researching a company only to find they it’s not such a great investment. Being able to short the stock allows the investor to still potentially profit from the time they put into all their research. This article will walk through how to short stocks and ETFs on your Ally account.

Margin Rates

Shorting stocks and margin accounts go hand in hand because all brokers, Ally included, will require you to get approved for a margin account before letting you short sell. This is because Ally requires you to back at least a portion of your short positions with cash or marginable securities, and you will essentially be borrowing cash from the broker to back the remaining balance of your shorts. The ability to borrow money for shorts is important in fast-moving markets as the value of a short position is constantly changing.

The amount Ally will let you borrow depends on the value of your account and the risk level of your positions (i.e. levered ETFs, small caps, etc. = more risk). Ally’s current borrowing rates range from 7.75% to 3.25%, which is in line with much of the industry. The rate you receive will depend on the amount you are borrowing, and it decreases as the margin balance increases.

How Do I Place a Short Trade on Ally?

Placing a short trade on your Ally account is similar to buying stock except you place a “sell short” order. You will indicate the ticker, the quantity of shares, and the price you want to short the stock at. Ally will confirm they have the shares of that stock available for you to short and that you have sufficient margin balance for the short before releasing the trade to the market for execution.

Ally Invest Short Stock

In the below example, you can see we are placing a sell short order for 100 shares of AAPL using a limit price of $193.52 per share. Once we submit the order Ally will seek to borrow 100 shares of AAPL for our account and then sell them in the market at a price of $193.52 or higher.

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How Do I Close My Short Position?

When you are ready to close the short position in your Ally account you will place what is called a “buy to cover” order, which simply means you are buying back the shares you sold so that they can be returned to the original owner they were borrowed from, effectively closing the short position. Similar to when you opened the short position, the buy to cover order will ask you to specify the ticker, quantity of shares, and the highest price you’re willing to pay to buy the shares back at.

Ally Invest Buy To Cover

Continuing from the previous example, in the below screenshot you can see we are now placing a buy to cover order to close our AAPL short. We indicate that we would only like to close the 100-share short position if we can buy the shares back at a price of $185 or lower.

Can I Use the Proceeds from a Short Sale?

While you have an active short position in your Ally account this will show up as a negative balance equal to the market value of the short and Ally will not allow you to use the cash proceeds from selling the shares you borrowed until the shares are repurchased and the short is closed.

Risks of Short Selling

Shorting stocks comes with all the same risk as owning long positions plus additional risks that cannot be overlooked. Ally (or any broker) does not guarantee that you will be able to keep your short position open for as long as you like, which means you could be forced to close your short sooner than you want at a potentially unfavorable price. The other major risk unique to short selling is that your losses are potentially unlimited since in theory a stock’s price can go up forever.

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