Short Selling A Stock? It’s All About Location

How To Locate Shortable Stocks

After logging into the Lightspeed Trader platform, users simply have to type in the stock ticker of their choice into the Quote box. Once the ticker is entered, a symbol will immediately appear in the upper right-hand corner of the Quote box. If a green box with the letter E appears, it means that the stock is relatively easy to borrow and is immediately available to short. Short sellers who get the green box have the go-ahead to place a short sale order.

If you see a gray box with the letter L instead of an E, that means your broker still needs to locate shares. This location process can be completed by requesting to locate the appropriate number of shares automatically in the Short Request window of Lightspeed Trader.

If you get a red T, it means the security is unavailable to borrow due to regulatory purposes and cannot be shorted at that time.

Other Factors To Consider

In addition to the normal trading commissions, short sellers must pay borrowing costs called Locate Fees for any hard-to-borrow shares they sell short. These costs tend to be higher the more difficult a stock is to borrow, so popular hard-to-borrow stocks can often be the most expensive to short.

In addition to borrowing costs, shorts are also responsible for paying margin interest on short trades and making any dividend payments paid out to their borrowed shares. Short sellers can also find themselves at the mercy of short squeezes and “buy-ins,” which can occur if a heavily-shorted stock makes a large move up in price.

Short selling is a tactic employed by people up and down Wall Street. The biggest thing to remember, however, is that shorting a stock opens you up to unlimited risk because in theory, a stock price can go up forever, while when compared to going long, the floor of the trade would be the stock price hitting $0. So, remember, while shorting can be a profitable strategy, make sure it’s done correctly.