Special: Best Lesson Ever On How To Find Shares To Borrow of Stocks at Different Brokers

Posted by Kamil on May 10, 2010
General

Let me just warn you that short selling is even more dangerous than buying (aka going long) stocks.

Why?

If you buy a 1000 shares of MCGI at 2.3, you will pay $2300 + commission. Thus, most you can lose is $2300 and there is no limit on your reward– it could go as high as $4, or $100 per share.

If you short sell a 1000 shares of MCGI at 2.3, you will pay $2300 + commission. Here is the catch: you bet that the price will go down, so THEORETICALLY you can only make 100% of your investment if the price will go down to $0 (zero, null, nada, nic, vlere). THE PROBLEM: the price of the stock can go up infinitely, so you can lose the value of your whole account if you are not being careful. I recommend to never, ever, under no circumstance, leave the short position open without you looking at the price action and being ready to pull the trigger within seconds. If you still do not understand what short selling is or are confused about something, please leave a comment with your question and I will do my best to answer it.

If you understand the risk of short selling, you are half way there. In order to short a stock, you need to borrow shares from your broker. Below is the list of some brokers and how I go about borrowing shares from them.

Thinkorswim: their platform will tell you whether given stock is easy to borrow or hard to borrow by showing you ETB or HTB in the top right corner of the quote window. If it is ETB, you can just execute sell order which is equivalent of shorting. If it is HTB, you have two options: call them or chat with them live on the website. I generally prefer to chat with them as it is the easiest and most convenient for me. I connect with Trade desk, and say “Hi, do you have a 1000 shares of MCGI to borrow?.” If they do not have shares, the person will say “none” or “none available.” If they are available, the person you are speaking with will ask you for your account # and the price you want your order to be placed. I usually would reply with “Set sell lmt order at $x.xx”” — I recommend to ALWAYS set your order higher than it is now at as sometimes it could take them 10 seconds and sometimes 2 minutes for your order to start working.

TD Ameritrade: there is no way to know whether the stock is short-able or not. You can try executing the sell order and it will either get executed or not. If not, you will be simply given an error message saying: rejected. Note that TD has implemented Thinkorswim’s software recently so it might be possible to know whether it is short-able or not. I personally have not used TD for a while; I never liked TD and their high commissions.

E-trade: tired them in the past. My experience has been negative (but maybe they changed since then?). Just like with TD, you can’t know whether it is short-able. You can try executing sell order and it will either be successful or rejected.

Sogotrade: You can know whether given stock is available to borrow by using this URL: http://www.gndt.com/support/shortlist.htm or simply calling them. The list is updated only once during a day so it is possible that shares of desired stock might be already borrowed and not available anymore. Generally speaking, in my experience, Sogotrade usually has shares to borrow of stocks you can’t find with other brokers. Don’t ask me why, I don’t know…

I will add more brokers if anyone is interested.

– Kamil

Tags: , ,

6 Comments to Special: Best Lesson Ever On How To Find Shares To Borrow of Stocks at Different Brokers

  • nice. i just started with IB and they offer query box for shorts, you can type in the security. it tells you amount available to borrow, and other statistics similar to what u see on shortsqueeze.com. i have found some shorts avail on IB that i can’t find on tos or sogo, which had the best pool of shorts i was accustomed to before i found interactive… the latest ones only they had were IFLG and FAZ… two that I think i could ride down to fractions

  • Daniel, I have heard good things about IB and their short list. I will create account with them one of those days when I will have time. I’m happy with my few current brokers so I’m not in a rush.

    Just fyi to everyone, I you also check shares at IB by using this URL: ftp://ftp2.interactivebrokers.com/usa.txt just hit OK and don’t enter the password. Or here http://www.interactivebrokers.com/en/trading/SearchShortableStocks.php?cntry=usa&tag=United%20States&ib_entity=llc&ln=

  • K,
    Hope you went short on yje holy grail trade.
    We were 400% short again. Just love
    those super big profits. Hope you are
    getting your share.

    Paula

  • Paula,
    I’ve been extremely busy. Hope you and Julie are ok.
    I am short just not as much as you. big move is expected though soon enough 😀

  • What happens if you have a $2000 account, you short lets say GNHI at .15 and it goes UP to .30 ., how much do you loose. Do they just take your whole account or what?!?