How to Short Stocks

January 28, 2025

Having the ability to short stocks is one of the most important tools in any trader’s toolbox. It can be a profitable strategy, especially when you know what to look for and have the confidence in your thesis. But, like all trading strategies, it comes with its own set of risks.

First, you need to have a margin account. To open a short position you must borrow shares from your broker (this is called a short sale). You will be charged interest on the total value of the borrowed shares for as long as they remain in your account. You also need to have enough cash or stock equity in your account as collateral to support the position in case the market suddenly rises and you are forced to close the short position by buying back the shares. How to Short Stocks

How to Short Stocks in the UK: A Beginner’s Guide

The big risk is that you could potentially have unlimited losses. If a stock you short continues rising, it can wipe out all of your gains and even put you in debt. This is a big reason why most traders only short stocks they have a high level of confidence in and for very short periods of time.

You can short stocks either outright or through derivatives. Direct market access brokers usually have the locate request built into their platform for speed and ease and they can also offer very thin or hard-to-borrow stocks. There is a cost to borrow shares for those stocks that are not ETB and there can also be fees to locate the stock itself.