Can you sell ETFs and stocks short on Firstrade? Does Firstrade offer inverse ETFs and buying put options?

Can You Short Sell on Firstrade?

Shorting a stock, or betting that its price will go down, is a powerful tool to have in your portfolio’s arsenal as in theory it doubles the number of opportunities you have to make money in the market. This is especially true for fundamental investors that spend lots of time combing through a company’s financials because shorting gives them the ability to profit from weak companies they find, whereas a long only investor can only avoid them. This article will tell you all you need to know to short stocks on Firstrade.

What is Short Selling?

Short selling is betting that a stock’s price will go down and profiting from the move if/when it happens similar to how you would buy a stock and profit when/if its price went up. When you place a short bet, behind the scenes your broker is locating and “borrowing” the shares from someone else who owns them and then selling them in the market on your behalf. When you go to close out your short position, you will buy these shares back from the market (hopefully at a lower price) and then the broker returns them to the lender. This all happens behind the scenes so that you technically wouldn’t even know if some of your long positions were being “lent out” to investors that wanted to short them.

What Are Firstrade’s Rules on Short Selling?

Before you can place a short trade in your Firstrade account you must have a margin-enabled account with at least $2,000 in cash or marginable equities. The equity required to maintain a short position will vary based on the stock’s price movement and how volatile it is. As the price rises on a stock you shorted, your account will accumulate an unrecognized loss, which may require you to increase your margin balance to avoid a potential margin call.

How Do I Place a Short Sell on Firstrade?

Placing a short sell on Firstrade is similar to how you would open a long position except you want to choose the “Sell Short” order type. Then enter the symbol, number of shares, and the price you would like to short the stock at. You can see in the below example, we are looking to short 100 shares of the SPDR S&P 500 ETF (SPY) at a limit price of $290 per share.

FirstTrade Short Sell

How Do I Close My Short Position?

Let’s assume that Firstrade was able to execute my short trade above and that in a week or so I expect the SPY’s price to come down to ~$285.50 and that’s where I would like to close my short position for a profit of $450. To close the position at this price I would enter the below order details, choosing the “Buy to Cover” transaction type and if the price comes down to my limit price Firstrade should be able to execute the order.

FirstTrade But To Cover

Can I Use the Proceeds from a Short Sale?

Even though Firstrade is borrowing shares on your behalf for you to short, the proceeds from the sale won’t be available for you to use because you can think of the proceeds as collateral that you will need to close the short and re-purchase those shares in the market. Once the short position is closed, any profit that you realized would then be available for you to use as you wish.

What Does “Mark to Market” Mean?

Firstrade will mark to market your short positions at the end of each trading day, meaning that if the trade moves against you (i.e. the stock price rises) your short balance will become more negative and your short position will reflect an unrealized loss. Depending on your margin balance, a large unrealized loss could prompt Firstrade to request you to post additional cash to your account or else face a margin call where they force close your short position to protect themselves from potential losses. If the short position moves in your favor (i.e. the stock price falls) you will see a larger unrecognized gain in your account.

Risks of Short Selling

All of the standard risks of opening a long stock position (i.e. changing company fundamentals, market risk, etc.) still apply when you short stock; you’re just exposed to the opposite side of the bet. Additionally, shorting stock also poses some additional risks that you need to be aware of, including the risk of unlimited losses since in theory there is no limit to how high a stock price can go, whereas long investors don’t have to worry about losing more than their original investment. Firstrade also doesn’t guarantee that you’ll be able to maintain an open short position indefinitely as if shares became scarcer and difficult to borrow the broker can force you to close your short position at any time.


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