What Are Short Stocks?
Shorting of stock has been very popular among traders, speculators, and gamblers who like to take a substantial risk of capital loss. Traders take short transactions because they believe that when a stock is going down, they can sell it today and can buy it back at a lower price at some time in the future. If they are successful in this, they make a profit which is the difference between their sell and buy prices. Traders take this position to hedge or protect their downside risk when they have a long position.
How to Place Short Stocks Sell on E*TRADE?
When you are selling shares, you have to take it from someone who owns it. When you enter buy order you are closing your short position and buying the shares back from the stock market so that they are returned to the lender. E*TRADE manages to locate shares for you to take so that placing a sell short order is easy for you.
Placing a short sell order on E*TRADE is near to placing a standard sell order. The only thing that you will do differently is that you will select “Sell-Short” for the transaction and once the trade is implemented the proceeds from it will not be accessible for you.
E*TRADE charges the same commission as it would for a long buy or sell order. As you are trading borrowed shares. E*TRADE will charge you interest which depends on the cash and marginable securities that you have in your account to act as collateral.
Charges of Short Stocks Sell on E*TRADE
Short sales at E*TRADE will cost you margin interest. The broker’s interest rates may differ from 6% to 10% which depends on the amount owed. Few stocks are hard-to-be-borrowed which are subjected to additional fees.
Is There Any Risk to Sell Short Stocks on E*TRADE?
Besides, the standard risks of trading in the market, short selling may pose some extra risks. The most important of these risks is that your possible losses on these transactions are unlimited as it is unlimited on how high the price of the stock may go. On the contrary, when you buy a stock the highest that you can lose your beginning investment. Another thing is that E*TRADE doesn’t guarantee that they will be able to take shares for unlimited time so you can be forced to close your short position earlier than you might have thought.
E*TRADE Short Selling Requirements and Rules
E*Trade needs you to have a margin account with at least $2000 to short the stocks. E*Trade should be able to locate the shares to borrow for you to be able to short the stock. Besides, even when you have done shorting, E*TRADE doesn’t guarantee that it will allow you to keep the short position indefinitely. E*TRADE doesn’t allow shorting of OTC or penny stocks.